Commodity investing has been a difficult space to navigate over the past year. Though this asset class is known for its volatility, the last year has been plagued with unprecedented market instability, making commodity trading an incredibly frustrating venture. It is estimated that as many as 90% to 95% of investors lose money in the commodity space and last year’s returns likely only inflated that figure. That being said, there are still incredibly lucrative opportunities that exist. Gold, for example, finished up approximately 10% on the year though it was up much higher when its prices were sitting around $1,900/oz. Other notable wins included brent oil and live cattle while cotton and natural gas were among the worst performers. But what may be the most surprising to investors, is which commodity outperformed them all; milk [see also How To Lose Money Investing In Commodities].
Got Milk?
Yes, you read that correctly. Milk outperformed in the commodity space by posting gains of nearly 36% in 2011. That more than triples the performance of gold, yet milk’s rise flew relatively under the radar being that it is not nearly as popular of a trade as the popular precious metal. To clarify, milk futures do not refer to the gallon jugs one can buy in a supermarket. Instead, milk futures are “for a class of milk that is typically powdered or condensed and used in production of other products such as cheese. That class of milk makes up just more than half of the 195 billion pounds of milk produced in the United States annually” writes Chris Isidore [see also Invest Like Jim Rogers With These Three Agriculture Stocks].
For now, consumers haven’t felt a significant pinch, with liquid milk prices rising by just under 10% in the previous year. But the more important question to ask is why powered milk was able to outperform some of the most powerful commodities in the world. The answer likely lies in the export market. While liquid milk is perishable and therefore difficult to export, powered milk has a much longer life span and is in high demand around the globe. With a number of countries around the world struggling to meet dairy demands, they have turned to our exports to help them get by. Through the first 10 months of last year, milk exports jumped 26% to roughly $1.3 billion. The U.S. has long been one of the top exporting nations for milk with the majority of our productions going to Canada and Mexico [see also 12 High-Yielding Commodities For 2012].
How To Invest
So now the question remains, how exactly does one invest in milk? There are several options that are available, ranging from indirect plays on the agribusiness sector all the way down to milk futures.
- CME Futures: There are actually a wealth of futures and options to play milk including class III and IV milk, international skimmed milk powder, and even non-fat dry milk futures and options. There are also a number of other dairy futures offered on this exchange
- Dean Foods (DF): Dean Foods distributes a number of dairy-based products around the US. As a stock, DF has a relatively small market cap of just $1.97 billion though it has a hefty average daily volume of 2.3 million. DF will not be a direct play on the commodity, but may indirectly benefits from milk’s gain.
Disclosure: No positions at time of writing.
[...] 2011 was the year of the euro, but most investors are hoping for the opposite to be true this year. Rather than focusing on the issues overseas, investors would like to keep their minds occupied by the slew of encouraging data from recent U.S. reports. But for now, the euro zone remains under the microscope for the entire world. As for the euro itself, the currency is sitting at lows not seen for quite some time, as it seems to be losing ground to the greenback on a daily basis. The EUR/USD exchange rate is currently sitting below 1.27, a low that hasn’t been reached since early 2010 when the first euro crisis reared its head [see also 2011′s Best Performing Commodity Was……Milk?]. [...]
[...] 2011 was the year of the euro, but most investors are hoping for the opposite to be true this year. Rather than focusing on the issues overseas, investors would like to keep their minds occupied by the slew of encouraging data from recent U.S. reports. But for now, the euro zone remains under the microscope for the entire world. As for the euro itself, the currency is sitting at lows not seen for quite some time, as it seems to be losing ground to the greenback on a daily basis. The EUR/USD exchange rate is currently sitting below 1.27, a low that hasn’t been reached since early 2010 when the first euro crisis reared its head [see also 2011′s Best Performing Commodity Was……Milk?]. [...]
[...] Commodities have started the year off on the right foot after earnings from aluminum giant Alcoa pointed to a more bullish outlook for the foreseeable future. After 2011′s tough year in which 16 of the major 22 commodities lost ground, it has been a welcome start to 2012. While a number of commodity prices seem to be at cheap buying opportunities, many are fearful that further issues overseas will create headwinds for their favorite investments. Gold and oil have been two of the most talked about assets, as issues in the euro zone and Iran have been creating problems for each respective commodity. To help investors better understand today’s commodity field, we outline three of the best commodity stories from around the web this past week [see also 2011′s Best Performing Commodity Was……Milk?]: [...]
[...] Milk: Milk futures may seem silly to most investors, but they serve a very practical purpose for farmers and were among the best performing commodities of 2011. Unfortunately, this year has not been so kind, as losses of roughly 9% have plagued the asset. Investing directly in milk is difficult, but not impossible, as the CME offers several choices for whichever milk you may fancy [see also 2011′s Best Performing Commodity Was……Milk?]. [...]