With Summer temperatures topping out around the United States, the heat could have consequences beyond rising electric bills. Corn and soybean crops will reach maturity over the next few weeks, but the dry heat affecting growing areas of the US could erode crop conditions. As the historically largest exporter of soybeans and corn, U.S. farmers have a lot of pressure to ensure a strong harvest this year but analysts are already predicting another rough summer for the commodity supply [for more commodity news and analysis subscribe to our free newsletter].
The Effects on the Supply
While losing crops to the dry heat could see a rise in prices, the larger concern for farmers is the interruption of the pollination cycle. Both corn and soybeans will reach maturity over the next few weeks and a healthy plant will then produce pollen, but in cases of extreme heat and dry weather the plants will conserve their energy and will under pollinate if at all. This could mean a weaker crop in the future and has a number of planters worried.
Compared to last Summer’s conditions crops are practically thriving, but once again we are seeing a summer rise in price. Below we illustrate how high soybeans (in black) and corn prices (in green) reached last Summer after the drought and that prices have yet to fully correct [also see 3 Commodity Investments To Profit From Population Growth].
Ways to Beat the Heat
As crop prices continue to rise with the heat index investors a faced with a number of options to play the peak:
- Soybean Futures (ZS): The most direct way to make a play on the soybean market will be using futures contracts. Traded at the Chicago Mercantile Exchange with each contract for 5,000 bushels (about 136 metric tons), futures offer an extremely liquid way to play soybeans [see also Jim Rogers: The Agriculture Industry is Doomed].
- Monsanto (MON): Producing genetically engineered soybean and corn seeds with the purpose of improving the crops harvest yields, the company also sells special pesticides to farmers to further help boost production output. If weather continues this way Monsanto could be a strong short.
- Teucrium Corn Fund (CORN): The only pure play for corn investors looking to use ETFs, this fund spreads exposure to corn futures across three different maturities in an attempt to closely match spot prices [also see 13 Ways Corn Is Used In Our Everyday Lives].
Disclosure: No positions at time of writing.