(USA Today) – The drought may be leaving farmers high and dry, but investors thirsty for big gains are finding ways to profit as commodity prices soar.
Soybean and corn prices are hitting all-time highs and rising fast as parched fields threaten the nation’s food production cycle. And while the most severe drought in decades may mean higher food prices for consumers next year, investors are finding ways to make money now.
“The costs will go up and go right through the entire food chain. It’s going to be significant,” says Dave Steinberg of DLS Capital. “Look for food inflation, no doubt about it.” Given the size of the dry spell baking major sections of the Midwest, the world’s biggest grain-production center, investors are keying on:
The rapid rise of agricultural commodity prices. Corn and soybeans are in the hot zone for the fast price increase. Going into the year, the Agriculture Department expected yields of 166 bushels of corn an acre; that’s fallen to 123 bushels, says Paul Georgy, CEO of Allendale, a commodity market research firm. Corn prices rose from $5.50 a bushel earlier in the year to a record $8.49 on Aug. 10, says Bloomberg. That’s a 64% jump since mid-June.
Disruption to the livestock market. Corn, soybeans and alfalfa prices have risen so much, it’s affecting meat producers, who use those commodities as raw materials to feed their herds, Georgy says. Meat producers are losing roughly $200 a head on cattle and $50 a hog, as it costs more to feed the animals than their meat can be sold for, he says. Big meat producers such as Tyson and Smithfield are suffering; their stocks have fallen 27% and 21%, respectively, this year, a period in which the Standard & Poor’s 500 is up 12.2%.
Stocks poised to benefit. Investors able to look beyond the current crop can find ways to profit, says Evan Smith of U.S. Global’s Global Resources Fund. With grain prices high and inventory low, farmers will aggressively plant next year to profit, he says. Monsanto, which has already seen its shares rise 22% this year following a busy planting season in 2012, will benefit again, Smith says. Meanwhile, fertilizer makers CF Industries and Potash are likely to see strong demand in 2013 as farmers look to boost their yields when they replant, Smith says. Shares of CF are up 43% this year; Potash’s are flat.
“Prices are going up all over the world,” says DLS’ Steinberg. “Nothing ends up being benign.”
