The Surging Demographic Trends Behind Grain Investing

One of the driving forces behind commodity investing has been the exponential increase in the human population, as demand for these products continues to grow at an alarming rate. Among these commodities, grains are perhaps the most essential, as they are the staple of food products all over the world. Food commodities enjoy relatively inelastic demand; a demand that has been rapidly growing alongside the global population [for more grains news and analysis subscribe to our free newsletter].

The Facts and Figures

According to a recent study from Teucrium, the world population has doubled since 1960 and is only expected to grow in the coming decades. We currently sit around the 7 billion threshold, but that is predicted to eclipse 8 billion by 2030, and 9 billion by 2050 as emerging markets continue to develop and grow. Our population adds about 142 people every minute, or 75 million on an annual basis.

Currently, the USDA estimates that the annual demand per person averages out to 4.77 bushels of corn, 1.35 bushels of soybeans, and 3.54 bushels of wheat. Assuming the rate of consumption per person stays the same, that would mean that we will need 6.13 bushels of corn, 1.74 bushels of soybeans, and 4.55 bushels of wheat per person by 2050, a marked increase [see also 50 Ways To Invest In Agriculture].

Though grain investing has been relatively volatile this year, due to a massive drought in the U.S. brought on by the hottest summer on record, the long-term prospects are undeniably bullish. No matter what happens with fiscal cliffs, bailout packages, and financial follies, people around the world need to eat, and these basic commodities appear in a large majority of food products on the shelves today.

Investing For Tomorrow

With juicy growth potential and the inevitable need for these commodities, they present themselves as a sound long-term investment. Below, we outline three options to grant you exposure to your favorite grains.

  • DJ-UBS Grains Total Return Sub-Index ETN (JJG): Currently one of the most popular broad-based options, this fund invests in front-month futures for corn, soybeans, and wheat. The fund has just over $130 million in assets and has gained over 43% in the trailing three years.
  • Teucrium Corn Fund (CORN): The cleverly named product has been a big hit with traders, as the fund enjoys an average daily volume of more than 80,000 shares. CORN uses a unique strategy of holding multiple corn futures contracts at once to help mitigate the effects of contango/backwardation, but note that it charges 100 basis points to do so. Teucrium also offers SOYB and WEAT, which employ similar strategies for both soybeans and wheat [see also All About the Corn ETF (CORN)].
  • MLCX Grains Index TR ETN (GRU): This ETN is composed of four futures contracts: corn soybeans, soybean oil, and wheat. The fund has been mildly popular, with over $23 million in assets and trading more than 18,000 times each day. Note that as an ETN, GRU will never incur tracking error but will instead be at the credit risk of its issuer, Merrill Lynch, Pierce, Fenner & Smith, a subsidiary of Bank of America.

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Disclosure: Photo courtesy of Matthew Gordon. No positions at time of writing.

This entry was posted in Academic Research, Actionable Ideas, Agriculture, Asset Allocation, Commodity ETFs, Corn, Soybeans, Wheat and tagged , , , , . Bookmark the permalink.

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