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.

This entry was posted in Agriculture, Corn, News and Current Events, Soybeans, Wheat and tagged , , , , . Bookmark the permalink.

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.

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