For investors looking for smooth gains in the agriculture sector, the past year or so hasn’t been very friendly. The term “roller coaster” comes to mind as extreme weather conditions have gone from sunny to cloudy and back again.
Growing conditions and crop estimates continue to be revised with every bout of sunshine or rain, and overall, that has caused futures for corn, soybeans and wheat to go from record highs to record lows in a matter of a few months.
While that’s made for a bumpy ride for longer-term investors, those willing to do a bit of tactical commodity trading using a few key ETFs could have cleaned up riding this coaster. And now with pricing for these agricultural staples now back once again in the pits, investors could have another opportunity to ride the Ag sector to gains in the months ahead.
After one of the worst droughts in U.S. history, followed by torrential rainfalls, it seems Mother Nature has finally gotten conditions right. So right, in fact, that analysts are predicting record corn and soybean crops.
Cool weather and perfectly moist soil conditions have raised expectations about a bountiful corn and soybean harvest. These near- to below-normal temperatures through August’s first half will favor corn plantings and soil moisture will stay favorable over southern and eastern states. Analysts now predict that plantings will outpace the USDA’s aggressive forecast — already near record production — and reach 14.2 billion bushels in 2013. At the same time, those weather conditions will benefit soybean crops, pushing harvest estimates up as well.
That has pushed futures pricing for the two grains down to lows not seen in years.
Corn fell nearly 6.3% in July, making that the sixth-straight monthly drop and the worst stretch of such price decreases since 1996. That stretch of price declines for the grain have now pushed corn futures down to their lowest price — around $4.58 per bushel — since 2010. Meanwhile, soybeans have declined to 17-month lows and recently touched $12 per bushel.
All in all, soybeans and corn have fallen 15% and 32%, respectively, since the beginning of the year.
Signs of Rising Demand & Weather Issues
Despite the steady price declines and predicted bumper crops, there could be some bullish news on the horizon for investors and futures pricing: rising demand from key emerging market buyers. While economic growth might be slowing in places like China and India, people still need to eat. And it’s no secret that China has a tendency to load up on required commodities when prices are dirt cheap.