Issuer of CORN ETF says investors can take advantage of seasonal price declines at peak harvest time in Northern Hemisphere.
More than 18 months ago, Teucrium Trading (www.teucrium.com) issued its first agricultural exchange-traded fund, the Teucrium Corn Fund (NYSEArca: CORN). This past September, Teucrium, which draws its name from a classification of Mediterranean and Western Asian herbs and shrubs, announced three new single-commodity ETFs: the Teucrium Wheat Fund (NYSEArca: WEAT); the Teucrium Soybean Fund (NYSEArca: SOYB); and the Teucrium Sugar Fund (NYSEArca: CANE). Hard Assets Investor Managing Editor Drew Voros caught up with Teucrium Co-Founder and President Sal Gilbertie to discuss those ETFs and a Teucrium report that outlines seasonal prices declines for corn during peak harvest time.
Hard Assets Investor: You recently released a study that corn’s seasonal price decline is often associated with peak harvest time. Can you explain a little more?
Sal Gilbertie: The piece, "Harvest and the Seasonal Effect," explains the effects of the corn and soybean harvest — which occurs within a two- to three-month period every year in the Northern Hemisphere. Since the bulk of the world's corn supplies are grown in the Northern Hemisphere, there is a clear seasonal pattern that traders and asset allocators can often use to their advantage. Remember, with these crops, there is only one growing cycle, so all of the supplies for the entire year are grown and harvested at the same time. This massive influx of supplies on the world markets does two things: First, it often results in an absolute price low being set during harvest for corn that will be used the following year. Second — and this is very important for asset allocators — the abundance of supply often causes a negative divergence below the year's average price for both corn and soybeans.
HAI: How can investors take advantage of this pattern?
Gilbertie: Logic would dictate to acquire these two important agricultural commodities during the fourth quarter of the year. Should the absolute price lows also happen to be set in the fourth quarter — as is often, but not always the case — then all the better. Of course, a trader or opportunistic investor would be primarily focused on the absolute low price patterns, but both of these seasonals can be used to an investor's advantage in the fourth quarter of the year.
HAI: You’ve seen the same pattern with soybeans, right? Why the similarity?
Gilbertie: Soybeans and corn compete for acreage in the Northern Hemisphere, so there is an abundance of supply coming to market for both at the same time. The difference is that while both corn and beans share the seasonal negative divergence pattern, soybeans do not exhibit as strong an absolute price-bottoming pattern. That’s because there are vast amounts of soybeans also grown in the Southern Hemisphere.
HAI: If a December pattern of absolute lows is consistent, wouldn’t investors profit more through shorting corn?
Gilbertie: It is much more difficult to find a topping pattern in corn than a bottoming pattern. But it should be noted that investors could easily short corn by either shorting the shares of the ETP themselves or through the use of options, which are actively traded in the Teucrium CORN Fund as well.