Illinois Governor Bruce Rauner asked the U.S. Department of Agriculture to declare a disaster in areas of the state hit hard by flooding. He should have asked for disaster relief on behalf of all the nation's corn.
Illinois was the nation's #2 producer of corn in 2014, but the potential damage from on-going flooding in the state is not helping to prop up the price of corn. June was Illinois's wettest June on record and so far in July central parts of the state are already double normal levels. Unfazed, traders have sent corn spiraling downward the last two weeks as the grain rejoins the on-going collapse in commodities.
Last month, it seemed like corn, and by extension the Teucrium Corn Fund (CORN), had finally found a resting spot in relief from an extended sell-off that started anew with the new year. Corn reports at the end of June helped to confirm the rally in CORN. This rally ran about 20% in just one month, but it is getting a serious test here. CORN has completely reversed the gains from the Grain Stocks report on June 30th. CORN closed Friday teetering right at its 50-day moving average (DMA) (red line in the chart below).
Teucrium Corn ETF (CORN) is suffering from a sell-off as sharp as the preceding rally. Only the 50DMA stands now between a resumption of the downtrend and hope for a recovery.
The week began with the latest crop progress report. Corn conditions are still running slightly behind the pace from a year ago with the “excellent” category suffering the largest gap (thanks in large part to the poor showing from Illinois).
Several potential explanations could apply to CORN's plunge. I am focused on what the collapse in commodities is saying or SEEMS to say to traders about the condition of the Chinese economy. China is the world's #1 driver of many commodities. For corn, China's consumption of pigs looms large. To the extent China is entering an economic slump, meat could become much more of a luxury than it already is. A drop in meat consumption will send corn demand downward as well. Forward-looking traders have to keep this potential impact on the radar.
