Farmers in Brazil have overcome many obstacles in the past but
rainfall has not been one of them until the drought that began in
Argentina spread, severely damaging both corn and soy bean crops.
With no rain for the entire month of December and only one rainy
day in January, farms are hard-pressed to remember a worse
Not unlike their U.S. counterparts, Brazilian farmers purchased
crop insurance -- but the similarities end there.
Farms are finding the insurance is not worth the premium. The
policies cost about 20% expected production cost and only pay out
about 70% of production cost.
And as with U.S. car and homeowners insurance, if
policyholders file a claim, it will only increase your future
premium. As a result, many Brazilian farmers are avoiding filing
claims until they completely lose their crops.
Analysts suggest the government is likely to step in to assist
with the disaster. Otherwise, Brazil runs the risk of losing 10%
of its agricultural output this year and the county's farmers go
out of business.
Brazil uses corn not just for food but also for fuel and if
farms do not plant a second corn crop before March 10, they run
the risk of the crop not maturing before freezing Southern
Hemisphere winter weather moves in.
Here too, with farms losing profits and corn already looking
relatively expensive, the prospect is that the next crop will be
anything but corn -- and likely cheaper to harvest.
With drought a problem in Brazil
, have we just begun to see corn prices rise as the country may
now have to import vs exporting?
Traders can plant their decision via the ETF for corn:
Teucrium Corn Fund (
), which seeks to replicate -- net of expenses -- the daily
changes in percentage terms of a weighted average of the closing
settlement prices for three futures contracts for corn that are
traded on the CBOT.
The biggest contracts in the portfolio are the December and
second-to-expire CBOT corn futures contracts, each weighted 35%.
The third-to-expire CBOT corn futures contract is weighted
CORN will invest in corn futures contracts. It may also invest
in corn-based swap agreements, short-term obligations of the U.S.
government and/or cash equivalents.