Power Profits Insider Issue #4

Freedom Financial Archive | Originally posted April 13, 2023

Dear Reader,

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Now, on to the latest analysis and trade…

Gains on Grains:
A Tactical Trade Opportunity on Wheat Futures

  • Wheat prices have corrected in recent months, so a favorable entry point is ideal for profiting as prices rise due to several macro factors.
  • Volatility in geopolitical events will further disrupt supply chains globally, resulting in higher commodity pricing, including wheat.
  • This fund gives you exposure to wheat futures as lower crop yields and macro disruptions provide a tactical trading opportunity.

The food situation continues to deteriorate with crop estimates being reduced around the world – especially in wheat.

Wheat is a staple crop for many emerging markets globally, and a change in yield will have significant impacts on price and availability. The U.S. is a key exporting nation and has racked up one of the worst conditions in recorded history. No matter how you look at the data, this year’s crop is shaping up to be worse than last year’s – which was one of the worst on record.

To put that into perspective, 28% of “good or excellent” rated condition is the second worst recorded going back to 1987. (These two charts show current conditions compared to last November and a year ago at this time).

Inflationary Prices Are Passed On

The bigger concern globally is the decrease we are seeing across core crop yields that are struggling because of weather shifts. Driven by overfarming that has caused soil degradation, yields have been disappointing while the global population keeps increasing.

The food supply chain is getting stretched, and we need to come up with meaningful solutions to drive yields higher while keeping prices low for the farmer. Inflation has caused higher prices for seeds, fertilizer, diesel, and other input costs that will be passed down to the consumer.

This will increase stress for the consumer, and if the farmer can’t afford the same amounts of seeds or fertilizer as in past years, yields will be directly impacted.

Russia’s invasion of Ukraine only made the situation worse with falling yields (inability to plant) as well as barriers to getting product to market. The most recent supply chain issues include Louis Dreyfus, Viterra, and Cargill no longer exporting Russian grain starting July 1st.

Let’s put that into perspective.

From July 2022 – March 2023, these three traders shipped 14% of Russian wheat. Now, you might say this is keeping revenue away from the war effort, which is accurate. But it also takes more grain out of the market and stresses an already tight market.

Crop Yields Are In Trouble Around The World

Many nations are suffering from a shortage in wheat imports and crop yields.

For example, Egypt is one of the largest buyers of global wheat in the world. The country is struggling to manage its food supply following shortages and currency problems.

According to the USDA’s Foreign Agricultural Service, Egypt’s wheat imports for the season that runs through June 2023 will be about 10.5 million tons.

That would be the second-lowest import total for the past 10 years. The decrease is due to the fallout from the war in Ukraine and an ongoing foreign currency crunch.

Egypt has announced they have wheat stocks that are sufficient for 2 – 3 months, which puts into perspective how tight their market currently is. The market is unlikely to get much better with drought gripping some of the U.S.’s key winter-wheat growing regions for months, including Kansas and Oklahoma.

Other nations are struggling as well.

A historic drought ravaged Argentina’s crops, the war in Ukraine has forced many farmers to reduce plantings, and Canada is facing a dry spell at the start of its spring-wheat growing season.

The U.S. has not been immune either.

Soil moisture levels are becoming more vital with crops resuming growth as spring sets in. The poor U.S. weather presents a setback to rebuilding global supplies, as other key growers also face challenges.

There is an underlying decline in U.S. winter wheat conditions that have experienced lower highs and lower lows- a terrible trend as the world runs tight on food.

Conditions are more favorable in the European Union where growing conditions are largely good.

While Europe has seen some increases in the same time period, shortages in the world mean that the additional EU cargoes will do little to address the problem. A lot of these additional cargoes are also going to North Africa, which is leaving Southeast Asia and other African nations short on wheat imports.

The European Union’s soft-wheat exports in the season that began in July of last year reached 23.1 million tons by April 2, compared with 21.5 million tons a year earlier.

Canada is another important producer of global wheat and canola markets, and their issues are stressing the system further. A dry spell is parching Canadian farmland when growers most need moisture to plant the wheat and canola crops that help feed the world.

Parts of the Canadian prairies have experienced the second-driest start to a year in 45 years. Swaths of key spring wheat regions including Alberta, Saskatchewan and Manitoba have received less than 60% of average precipitation since Sept. 1, according to Canada’s agriculture ministry.

Also, Russia could add new fears to the market if they don’t renew the Black Sea trade deal that allows passage of Ukraine vessels along a set route. As Finland officially joins NATO, Russia could get rid of the deal in retaliation for the new NATO member.

All these dismal data and geopolitical concerns give us one consensus. The world is short on wheat, a major source of the food supply.

Today’s Recommendation:

These problems in the global grains market provide a great opportunity to buy shares of Teucrium Wheat Fund (WEAT).

This fund provides you with an easy way to gain exposure to the price of wheat futures in a brokerage account.

This exposure to the wheat markets will allow you to take advantage of the upside as prices are likely to rise back to $10 in the fund.

As wheat prices typically have a low correlation with other equities in the stock market, diversifying your portfolio is ideal with the WEAT fund. It also helps with your exposure to the agriculture sector.

We like the fund as a tactical trading instrument and see room for it to trend higher over the next few months.

The fund has been on a downward trend for the past six months as wheat future prices aren’t fully reflecting the shortages and geopolitical uncertainty. Getting in at such a low entry point is a great opportunity to profit from existing conditions that will only create tighter supplies and higher prices in the coming months.

Action to Take:

BUY Shares of Teucrium Wheat Fund (WEAT) up to $7.05 per share.

I am expecting great returns from this stock as prices rise in a tighter wheat market.

Good luck with this trade!

Good hunting,

Freedom Financial News