China has long been pursuing a state of independence, relying less on the global market for a variety resources. That independence is spilling over into agricultural commodities, which could sway the market.
According to a report from S&P Global, this plan of self-reliance comes as China looks to shore up food security. The government plans to achieve this goal by way of supporting domestic production and eschewing imports.
“China indeed has a long-term goal to become self-sufficient in agriculture,” said Louis Kuijs, Asia-Pacific chief economist at S&P Global Ratings, in the aforementioned S&P Global report. “It remains to be seen to what extent it will meet this goal. China is traditionally good at achieving certain objectives while less good at achieving other goals.”
The report highlighted the deteriorating relations with the United States, which could also mean the long-term trend of reliance on the U.S. for corn is temporary. This could potentially disrupt future corn prices.
“Sino-American relations have encountered unprecedented challenges, and it is consistent with the current situation for Chinese buyers to seek stable and long-term supplies, which would reduce agricultural imports from the US,” said Shanghai JC Intelligence. “We do not rule out the possibility of further deterioration in relations between the two countries, which could lead to a further decrease in imports from the United States.”
Diversified Ag Commodities Exposure
Investors looking for a broad ag commodities play for diversified exposure should consider the Teucrium Agricultural Fund (TAGS ). The fund combines exposure to Teucrium exchange traded funds focused on corn, wheat, soybeans, and sugar.
Traders or long-term investors can focus on TAGS for broad-based exposure or the individual funds for a more focused, concentrated approach in specific commodities. The individual funds featured in TAGS:
Agricultural commodities can provide a portfolio with the diversification it needs to help navigate market uncertainty. Furthermore, the potential for upside is apparent given the long-term performance of the Teucrium Agricultural Fund Benchmark Index. That index is up more than 40% within the last five years, making ag commodities an ideal long-term play.
Moreover, TAGS offers a perfect complement to a traditional 60/40 stock/bond portfolio with uncorrelated assets exposure, all in the convenience of one dynamic ETF. For more concentrated exposure in specific commodities, investors can also invest in the individual funds.
For more news, information, and analysis, visit the Commodities Channel.
