Following a period of dominance by energy and metals in the commodity market rally, agricultural products are now experiencing a new wave of upward momentum.
As U.S. stock market volatility has increased recently, capital is seeking allocation opportunities beyond the technology sector, and the technical patterns of agricultural commodities are showing breakout signals. Mark Newton, Head of Technical Strategy at Fundstrat, is optimistic about the outlook for grains, forecasting that corn, wheat, and soybeans will continue their upward trend through 2026.
He noted that, technically, the agricultural commodities rally is beginning within the broader commodity sector, just as the upward momentum in U.S. equities has started to waver in recent weeks. He anticipates that while crude oil prices may stall or reverse in the coming weeks, certain commodities still have room for appreciation, with "soft commodities" expected to be the next area to catch up, returning to the recent strength seen in metals and energy.
Supply-side risks are adding fundamental support to the agricultural price surge. Energy expert Anas Alhajji pointed out that 33% of globally traded fertilizers originate from the Gulf region, coinciding with the ongoing planting seasons in Asia and Europe. He warned that even if tensions in the Middle East subside within weeks, their impact on consumer prices could persist for months, stating, "If the fertilizer issue evolves into a food crisis, the consequences will be even more profound."
Agricultural ETF Breaks Key Resistance Level
Newton continuously monitors the Bloomberg Commodity Index, where energy holds a 34% weighting and agriculture accounts for 27%. He observed that the index has surpassed its high from last month, reaching its highest level since 2022, and is poised to challenge its all-time high within the year.
Regarding specific investments, Newton is focused on the Invesco DB Agriculture Fund (DBA), which tracks ten agricultural commodity futures contracts. According to FactSet data, DBA has a three-year annualized return of 13%, a ten-year return of 4%, and has gained over 3% in the past year.
Newton stated that DBA has broken through a key technical resistance level. The fund initially broke its trendline in early February, and trading volume surged to its highest level in recent years this past Thursday, further confirming the validity of last month's breakout. He expects DBA to test last year's high of $28.49 and potentially advance further towards $32, a target that could be achieved by 2026.
Newton believes that, based on a six-year cycle observed in grain markets, soybeans, corn, and wheat have all transitioned into an upward trajectory. Year-to-date performance shows significant gains for grain futures: wheat futures are up 17%, soybeans have risen 13%, and corn has increased 3%. He indicated that as investors seek alternatives to technology stocks, agricultural commodities are gradually gaining more attention in the market.
Comments