Panic, Drought, Massive Gains For The Grains

It is no secret that grain prices have been soaring as a number of savvy commodity investors have been cashing in on the latest trend to take the world of hard assets. Many are also aware that a nation-wide drought has been the culprit of said price rises. But while the drought has been widely covered, few realize just how severe it has been. For starters, the trailing 12 months have been the hottest on record for the U.S. since records have been kept (dating back to 1895). Combine that with the lack of rain in the past few months and you have the worst drought seen in nearly 70 years, putting a major pinch on the prices of a number popular commodities [see also Five ETFs To Own During The Next Market Collapse].

Two of the biggest jumps have been seen in corn and soybean futures, as the two foods have jumped by about 50% and 35% respectively in the past month and a half. But despite the issues at hand, the Fed doesn’t see the temporary price spike as an inflationary event that needs to be combated. “It’s kind of like a transitory oil price spike. We get good rains next year and it’s gone, it isn’t something that the Fed will fight as inflationary,” said Diane Swonk, chief economist at Mesirow Financial in Chicago. But consumers beware, the full impact of this price spike may not be felt until the first half of next year, making this issue a year-long affair.

Congress is currently weighing the effects of passing another farm bill that would fund those who have been hit hardest by the drought. A similar bill in 2008 provided $50 million to farmers all across the country whose crop yields were destroyed due to adverse weather conditions. According to a U.S. drought monitor, the majority of the country is abnormally dry with a number of regions falling under the  worst category of “exceptional” drought [see also Four Commodities To Buy Before Roubini’s “Perfect Storm”].

Notable Drought Performances

The following commodity ETFs have racked up strong performances given the recent drought and will continue to do so until these conditions cease. It should be noted that the past week has brought some much needed rain to the majority of the country which may calm these funds down in the coming days. All performances are as of June 1, 2012.

  • DJ-UBS Grains Total Return Sub-Index ETN (JJG) - 49%
  • Teucrium Corn Fund (CORN) - 40%
  • DJ-UBS Agriculture Subindex Total Return ETN (JJA) - 38%
  • Pure Beta Grains ETN (WEET) - 37%
  • DB Agriculture Fund (DBA) - 18%

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Disclosure: No positions at time of writing.

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Commodity HQ is not an investment advisor, and any content published by Commodity HQ does not constitute individual investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities or investment assets. Read the full disclaimer here.

19 Responses to “Panic, Drought, Massive Gains For The Grains”

  1. [...] Agricultural commodities across the board have spiked big time in recent months as uncharacteristically warm weather has led to drought condition throughout some of the most important growing regions at home. Tightening supply conditions have likewise translated into hefty profits for commodity investors, especially those with extensive exposure to the grains family. With close to $3 million in assets under management, WEET is flying under the radar for most. The underlying basket of commodity futures is tilted towards soybeans and corn, although adequate exposure to wheat, soybean oil. and soybean meal is also included. [see also Panic, Drought, Massive Gains For The Grains]. [...]

  2. [...] And with the start of this year’s harvest season, corn and soybean futures rose as renewed expectations of reduced yields came to the [...]

  3. [...] two countries pretty much determines the price of cocoa around the globe. Weather obviously is a major factor. Too much rain can cause black pod disease while too much dry wind from the Sahara Desert [...]

  4. [...] a significant portion of most household budgets, investments in agriculture hedge exposure to an unexpected jump in prices. When inflation kicks in, food prices are often among the first to rise, making an investment in [...]

  5. [...] for both traders and long term investors. The fund currently consists of 11 futures contracts, including corn, soybeans, sugar, live cattle, and more. DBA has more than $2 billion in total assets and trades [...]

  6. [...] 30,000 a day). Moreover, investors have logged a 17% year-to-date gain with this fund, as soybeans soared in the spring and fall. Once again, though, investors have to consider what is lost with the construction of the fund, as [...]

  7. [...] consumer standpoint. It should also be noted that some of these figures could be inflated given the severe drought that hit the U.S. earlier this [...]

  8. [...] of the most important crops in the world, and currently ranks as one of the three most consumed grains across the globe. Wheat is prized for being relatively easy to grow, as well as for being able to [...]

  9. [...] time lines given that the industry can be very volatile in the short term; just look at what thissummer’s severe drought did to grains [see also Why Jim Rogers Still Loves Agricultural [...]

  10. [...] major commodity. Of particular interest was their outlook on ags, as these commodities have been on a wild ride for 2012; one of the hottest summers on record and an extended drought sent futures all over the [...]

  11. [...] commodity. Of particular interest was their outlook on ags, as these commodities have been on a wild ride for 2012; one of the hottest summers on record and an extended drought sent futures all over the [...]

  12. [...] wreaked havoc on prices. After the United States endured the hottest 12-month span on record and an abysmal drought, a number of these staple commodities experienced big movements in price and trading volume alike. [...]

  13. [...] wreaked havoc on prices. After the United States endured the hottest 12-month span on record and an abysmal drought, a number of these staple commodities experienced big movements in price and trading volume alike. [...]

  14. [...] havoc on prices. After the United States endured the hottest 12-month span on record and an abysmal drought, a number of these staple commodities experienced big movements in price and trading volume alike. [...]

  15. [...] billionaire investor George Soros and his former partner Jim Rogers, among others. With the drought sending corn, wheat and soybean to modern-era highs last year and early this year, many analysts [...]

  16. [...] agricultural industry was hit hard by the most severe and extensive drought in at least 25 years in 2012, which had an impact on crops, livestock and food prices at all [...]

  17. [...] 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 [...]

  18. [...] than the one just a year ago, throwing a wrench into a number of commodities. 2012 was the warmest calendar year in U.S. history, and the summer was especially hot. This year has been a different story, as [...]

  19. [...] Interestingly enough most MLPs center around energy, but are not necessarily correlated with the cost of energy, and are thus seen as a more stable exposure to commodities without having to worry about the constant fluctuation of price. [...]

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