5 Stocks to Profit from Soaring Grain Prices
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The 2012 drought has been hard on farmers in the United States. I know personally as the drought here in Kentucky laid waste to the second cutting of hay on my father's hay fields, which is vital to feeding the herds through the coming winter months and providing enough hay for the feeder calves that will be topped out in the feed lot. Another problem facing farmers and ranchers will be the high cost of corn spurred on by the drought. In my area some corn yields will range from 38 to 2 bushels of corn per acre down from the normal average of 225 bushels per acre. With crop expectancies this low, this not only constitutes a problem for farmers and ranchers, but will be far reaching and affect us all. Corn is already trading at an all time high as of Friday, July the 20th 2012, with September corn at $8.28 3/4 a bushel, and expected to go much higher.
With every rain cloud, there is a silver lining! Knowing where to profit from the corn shortage is a must. I know someone reading this is thinking, "Davis is wanting us to profit off of the devastation of others," well that is not entirely true. It is in fact being apt to take advantage of the situation at hand. Wise farmers have crop insurance for times like these, because experience has taught them that Mother Nature does not always cooperate. Beef growers like my father, who has seen his share of difficult times and prevailed against uncertain odds, keep hay reserves for years to insure the well being of his herds. So what advantages can we take to gain from this tragedy, knowing all too well how hard we will be hit in the grocery store? The answer is simple, look for companies to invest in that stand to profit from exceedingly high grain prices, and those on the cutting edge of hybrid seed innovation.
PowerShares DB Agriculture Trust (NYSEMKT:DBA) which tracks the performance of the Deutsche Bank Liquid Commodity Index - Optimum Yield Agriculture Excess Return. This ETF focuses on futures contracts of agriculture commodities such as corn, soy beans, and wheat. During the last corn hike in '08, DBA saw record highs. With a growing concern over world wide food shortages, look for grain prices to continue to rise boosted by speculators in the commodities market. As national corn yields continue to come in, DBA is already up 14% in just the last month.
Archer Daniels Midland co (NYSE: ADM) has also seen record highs due to the '08 spike in corn prices. Some reports suggest that the high corn prices could trim profits for the food processor though. In '08 ADM contributed the gains to the ethanol segment of their operations. Yes their raw input materials cost more then and will now, but I believe that they will be able to control their loss/profit ratio with their ethanol, grain merchandising, and export segments.
Teucrium Corn Fund (NYSEMKT:CORN) is another ETF based on three futures contracts, and you guessed it, they are all about CORN. This ETF started trading in June of 2010, and has already gained nearly $15 a share in a little over a month. However, why own one stock that stands to profit from the corn shortage when you can have a little piece of the whole pie? Check out Market Vectors Agribusiness Index ETF (NYSEMKT: MOO)! I look at this ETF and get excited about its potential, 7 out of the top 10 holdings for this ETF stand to make a profit from the corn hike. We are talking about Potash Corporation of Saskatchewan Inc, Monsanto Company, Syngenta AG, ADM, Mosaic Co, Agrium Inc, and CF Industries Holdings Inc! This ETF is going to explode with a range of companies like this!
With water shortages looming because of the drought, an investor needs to look to companies on the cutting edge of innovation in biotechnology. One company sticks out in my mind in this arena, Monsanto Co (NYSE: MON). What makes this company stand out to me is their product line of DroughtGaurd Hybrids. Which is currently in phase IV of Monsanto's R&D pipline, are designed specifically to help farmers reduce yield loss from drought stress. This will be a huge asset that will help farmers grow corn in dry climates.
Looking at these 5 stocks, I would be hard pressed to pick a favorite unless it was MOO, I say that only because of the diversification of the ETF. One thing is certain with corn prices already at an all time high they are sure to go up even more. Strategically aligning investments in your portfolio to take advantage of this up swing in price is not only good business, but is just plain common sense investing.
TSDavis75 has no positions in the stocks mentioned above. The Motley Fool owns shares of Archer Daniels Midland Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.