Corn Is Surging… Here’s How You Profit!

| June 29, 2012 | 0 Comments

I hate to say it, but your grocery bill may be going up in the near future…

Corn, the course grain that goes into thousands of products on the grocery aisle, is surging.  As a matter of fact, spot corn shot from $5.60 per bushel on June 1st to just over $6.50 as of yesterday’s close… a 16% jump.

Take a look…

Corn Chart

As you can see, corn’s gone straight up since the start of June.  But look a little closer and you’ll see it wasn’t until the past few trading days that things really started heating up.

What’s going on?

The US Corn Belt is baking under extremely hot and dry weather.  Temperatures are already soaring north of 100 degrees in many parts of the heartland.  That’s very unusual considering we’re not even in the hottest part of the summer yet.

And that’s especially bad news for corn farmers…

Midwestern US growing conditions are deteriorating at a rapid pace.  In fact, many commodity analysts agree this is the worst start to the growing season since a drought ravaged corn crops in 1988.

If temperatures don’t cool and rain doesn’t start falling soon, corn yields are likely to nosedive.  And potentially plummeting yields are precisely why corn prices are screaming.

Let me explain…

The 2012 growing season started out great.  An unseasonably warm winter led to a dryer than usual spring here in the US.  As a result, farmers were able to get into the fields early to plant their corn crops well ahead of schedule.

Conditions were so good the United States Department of Agriculture (USDA) raised their 2012 estimated corn yield to a lofty 166 bushels per acre (bpa).  By all expectations, the US was set to have a bumper crop this year.

But the same warm weather that got farmers into the field early is now coming full circle.  Young corn plants are entering the pollination stage in most parts of the country.  And if dry weather persists during this sensitive stage, it will spell trouble.

Due to the rapidly deteriorating situation, commodity analysts are already lowering corn yield estimates.  In fact, analysts at Rabobank have slashed their 2012 US corn yield estimate to 154 bpa.  It may not sound like much of a drop from the USDA’s lofty estimate, but lower yields will make a dramatic difference in US corn supplies.

As a result, Rabobank suggests corn prices may rise an additional 20-25% in coming weeks.  That would put corn near the all time high of $7.99 per bushel!

Is there a way you can profit from surging corn prices?

One thing’s for sure, if you’re not already in the corn trade, I do not recommend jumping on board here.  Weather related commodity trades can turn on a dime.  If the Midwestern US gets a few gushing thunderstorms, corn prices could come straight back down.

However, if you’re already long corn, like subscribers to my Commodity ETF Alert, I recommend you stay long and strong.  That’s right, my subscribers bought a corn- tracking ETF back in April, well before prices shot higher.

But don’t worry, there’s another way to profit from high corn prices…

Demand for drought specific fertilizer is increasing rapidly.  And that has fertilizer stocks like Agrium (AGU), Potash (POT), and CF Holdings (CF) setting up for nice gains into summer.

These stocks have already had a nice run over the past few weeks, but if corn prices continue soaring, there’s a very good chance they’ll rise even further.

At any rate, the corn market will be very interesting to watch over the next few weeks.  If a good drenching rain doesn’t bring corn prices back down, you’ll likely be paying a little more for your box of cereal!

Until Next Time,

Justin Bennett

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Category: Commodities

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.

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