U.S. Heatwave Draws Comparisons to 2012

Déjà vu all over again. It was about this time last year that much of the U.S. was engulfed in a crushing heatwave that injected a fair amount of volatility into the commodity world; namely in the agriculture markets. With the U.S. dominating the production of a number of big name crops, the recent heatwave has caught the attention of a number investors looking to cash in on the trend [for more agricultural commodity news and analysis subscribe to our free newsletter].

The Heatwave: Then and Now

For the 12 month span ending July of last year, the U.S. saw the hottest stretch since records have been kept. Higher temperatures combined with a severe lack of rain created the worst drought the country had seen in 70 years. As a result, corn prices surged by about 50% and soybeans jumped by 35%. The weather had gotten so extreme that analysts warned the impact could last well into the opening months of 2013.

Wheat HarvestThis time around is a bit different, but is still a situation that traders need to keep a close eye on. Thus far, massive droughts have not been the issue, but in the midst of the current heatwave, it is a concern for the near future. Recent forecasts showed warmer temperatures and less rainfall that many had hoped for, causing a number of commodities to trade with a fair amount of volatility [see also 50 Ways To Invest In Agriculture].

For now, analysts are expecting a strong harvest this year that may even enter into record-breaking territory. If the heat persists or the lack of rain continues, keep a close eye on crop yield expectations as any dips in those figures could send prices into a frenzy. Traders will also want to check the 6-10 day forecasts as prices tend to react to the expected weather ahead rather than the present conditions. Below, we outline securities that investors can use to make a play on the current heatwave:

  • DJ-UBS Grains Total Return Sub-Index ETN (JJG): This fund spreads its assets across corn, soybeans and wheat futures contracts to give investors a diversified play on the grains world. JJG currently has just over $100 million in assets and trades nearly 30,000 shares each day, giving it a fair amount of liquidity for anyone looking to enter and exit positions with relative ease.
  • Teucrium Funds: Teucrium offers ETFs for corn (CORN), soybeans (SOYB) and wheat (WEAT). Each fund utilizes a structure that holds multiple futures contracts at once to help mitigate the impact of contango during its roll period. For investors looking to hone in on a particular agricultural commodity, the three aforementioned funds may be your best bet.
  • Potash Corp (POT): As a fertilizer and feed product provider, Potash will surely have a noticeable reaction depending on which way the drought plays out. The stock currently has a market cap of $33 billion and pays out a handsome dividend of 3.6%

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Disclosure: No positions at time of writing.

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