I recently hinted that corn farmers don’t need to worry about the future, even if demand from the ethanol industry declines.
That’s because a new (and very large) buyer is emerging in the global corn market. In fact, this buyer is expected to become the world’s largest corn importer by 2020 and will account for 40% of all global corn trade by the middle of the next decade.
So who is this mystery buyer? It’s none other than the 800-pound gorilla of the commodities market… China.
First World Problems
The reason behind China’s increasing hunger for corn is simple – rising affluence. You see, a higher standard of living in China has directly translated to more meat consumption. And since corn is necessary to feed livestock, demand for corn is increasing rapidly.
In fact, meat consumption in China has already risen 27% since 2001, and the USDA expects this trend to continue. The agency forecasts that meat production in China will grow about 30% by 2024 to 90 million tons (mt) per year.
That kind of production will require a lot of corn.
Currently, the country imports five million tons of corn annually. But by 2020, some estimates show that China will import 16 mt of corn… and by 2024 that number jumps to 22 mt each year.
This is music to the ears of the world’s corn-growing countries, including Brazil, Argentina, Ukraine… and, of course, the United States.
Genetically Modified Difficulties
The United States is the world’s number one corn grower and exporter, and that means it’s well-positioned to be the biggest beneficiary of China’s ramped-up demand.
At the moment, though, there’s a sticking point for increased U.S. corn exports to China: GMO (genetically modified organism) corn strains.
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In November, China began rejecting a GMO corn strain – the Agrisure Viptera (MIR162) strain – that it had previously accepted. The strain, produced from seeds engineered by Syngenta AG (SYT), had already waited four years for an official okay from the government.
Syngenta says that China’s National Biosafety Committee met in April to discuss Viptera, though no announcement is expected before summer.
Beijing’s eventual decision could have a big impact on U.S. corn growers and exporters. Luckily, there’s good reason to believe that the Committee will eventually accept the GMO strain.
Navigating the Investment “Maize”
Based on the dramatic rise in China’s demand, an investment tied directly to U.S. corn prices should be on our radar.
One possibility is an exchange-traded fund called the Teucrium Corn Fund (CORN), which provides direct exposure to corn futures without the need for a futures account.
CORN’s portfolio consists of the following corn futures contracts traded on the Chicago Board of Trade: the second-to-expire CBOT corn futures contract (35%), the third-to-expire CBOT corn futures contract (30%), and the December corn futures contract that follows the third-to-expire contract (35%).
Currently, the ETF – which has a 1.99% expense ratio – is up about 15% from its 2014 low.
And “the chase” continues,