Heavy rain across the Midwestern United States hampered planting efforts for major crops, which has sent prices of key commodities such as corn, wheat, and soybeans sharply higher. Since many farmers are weeks behind schedule, the impacts on the supply chain will likely continue to propel prices higher. In this article, we'll take a look at several key charts from across the agriculture sector and determine where prices could be headed over the short to medium term.
Invesco DB Agriculture Fund (DBA)
Niche sector funds such as the Invesco DB Agriculture Fund (DBA) have consistently been looked to by active traders for trying to get a sense of major trends. As you can see below, the price of the DBA exchange-traded fund (ETF) recently crossed above the combined resistance of an influential descending trendline and its 200-day moving average (shown by the blue circle).
The breakout will likely be used by traders as a signal of a major shift in underlying fundamentals and could be used to mark the beginning of a prolonged uptrend. From a risk management perspective, stop-loss orders will most likely be placed below the nearby 200-day and 50-day moving averages, which are trading at $16.82 or $16.37, respectively.
Teucrium Corn Fund (CORN)
According to the United States Department of Agriculture, as of May 19, 2019, only 49% of corn crops were planted in the 18 states that in 2018 comprised 92% of corn acreage. Typically, levels would be expected to be near 80%. Taking a look at the chart of the Teurcrium Corn Fund (CORN), the impact of the wet weather becomes quite clear.
From the perspective of those who follow technical analysis, the break above a multi-year downtrend line shown by the blue circle suggests that the shift in supply and demand will continue to push the price higher over the coming weeks or months. Traders will likely keep a close eye on the dotted trendline and expect to see higher prices until the fund closes back below that level.
Teucrium Wheat Fund (WEAT)
While the figures don't look quite as uninviting as those shown above for corn, the weather is influencing prices of other agriculture commodities such as soybeans and wheat. Taking a look at the chart of the Teucrium Wheat Fund (WEAT), you can see that the price has recently surpassed the combined resistance of two influential trendlines and its 200-day moving average.
For those who follow technical analysis, the break above the 200-day moving average signals a shift in the long-term trend and could be used as a sign of the early stages of a major uptrend. Bullish traders will most likely look to place orders as close to the moving average as possible and protect against a sell-off by placing stop-loss orders below $5.83 or the swing low near $5.50, depending on risk tolerance.
The Bottom Line
Crop prices have been strongly affected by rainy weather across the Midwest. As discussed above, a delayed planting season has some investors concerned about supply and demand moving forward.
Based on the charts discussed above, it appears as though followers of technical analysis will expect prices to move higher given the breakouts beyond key trendlines and long-term moving averages. The charts will most likely be watched closely by active traders over the coming sessions due to the clearly identified levels for placing buy and stop orders.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.