High Crop Yields Burn Corn And Grain ETFs

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Traders turned bitter on agricultural commodity ETFs Monday on better-than-expected crop yields, while the stock market dipped modestly on poor economic data.

IPath DJ-UBS Grains ( JJG ), tracking corn, soybeans and wheat, plunged 4.11%. Soybean futures hit their daily trading limit, experiencing their biggest one-day drop in 1-1/2 years on reports of better-than-expected production in the Midwest.

JJG broke below its 50-day moving average for the first time in three months. It flew 50% trough to peak during the summer and has been trading in a sideways range the past two months.

Teucrium Corn ( CORN ) gapped down 3.33% to a two-month low, slipping below its 50-day moving average in high volume. It's trading below that key level for the first time since mid-June, when its stratospheric rise began. It shot up 50% in two months as major growing states suffered the worst drought in at least 25 years.

U.S. corn production fell to its lowest level since 2006, the U.S. Department of Agriculture reported the past Wednesday. The USDA projects 2012 corn output to undercut last year by about 20%. Soybean production is down 14% over last year.

It appears fears of drought-induced shortages already have been priced in and the market sees improving conditions.

"Harvest is getting into full swing, demand is awful and some record yields coming out of central Iowa have shocked everyone," said Shawn Hackett, president of Hackett Financial Advisors in Boynton Beach, Fla. "Yield (projections) may need to be raised if actual yields coming out of harvest continue to show this kind of trend."

"Speculators are all in and need to get out by the end of the year to book profits," he added. "They own 35% of U.S. grain production, so if they decide to sell all at once, which is their tendency, then watch out below."

U.S. Markets Overview

SPDR S&P 500 ( SPY ) shed 0.36%.

PowerShares QQQ ( QQQ ), tracking the 100 largest nonfinancial stocks on the Nasdaq, slid 0.19%.

SPDR Dow Jones Industrial Average ( DIA ) eased 0.30%.

"While only half way over, September 2012 is almost certain to end up positive," Randy Frederick, managing director of active trading and derivatives at Charles Schwab, wrote. "It would mark the seventh positive September in the last nine years; hardly what you would expect from a month that has the reputation of being the most bearish month of the year."

The S&P has rallied 15% from its June low to a five-year high.

"As the market rallies, some retail investors will try and jump on," Ronald Lang, principal of Atlas Wealth Management, wrote in a client note. "Some will be there for part of the climb, but when the core retail investors usually come back in (typically at the top of the market), its time to get out (or at least lighten the more profitable positions at that time)."

Economic Reports

The Federal Reserve Bank of New York reported that manufacturing activity worsened this month, according to the Empire State Manufacturing Survey released Monday. It fell to a negative 10.41 this month -- a 3-1/2-year low -- from a negative 5.85 in August. That was much worse than an expected reading of zero and the fifth straight month the index has declined.

Forward-looking new orders fell to negative 14.03 -- a two-year low -- from a negative 5.50.

Employment readings fell also. The index for the number of employees dropped to 4.26 from 16.47 and the average employee work-week index declined to negative 1.06 from 3.53.

Follow Trang Ho on Twitter @TrangHoETFs .



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , ETFs

Referenced Stocks: CORN , DIA , JJG , QQQ , SPY

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