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kirkydu (93.72)

Bread on the Table

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7

December 23, 2009 – Comments (4) | RELATED TICKERS: GRU , RJA , JJG

With corn and wheat getting to market at below the price of production if I have learned one thing from the farmers that I know it is this.  It won't last.  Corn and wheat prices will push up over the next two years, if for no other reason than farmers plant other things that they can make some money on.  Mark my words, you can count on farmers to pick now to be a time to rotate out of corn and wheat and into other crops.

So, what can you the investor do about what I consider to be the fact for farmers looking out for their own best interests?  Invest like a farmer.  The best security I have found to do that is GRU, the ELEMENTS MLCX Grains Index Total Return ETN.  While there are a few others out there, I like this one because of its weighting toward wheat and corn. The IPath Grains (JJG) is also worthy, however, it is weighted towards Soy and that's not what I am looking for right now (although it might be in a year or two).

There is an argument out there that ETNs are not safe enough to invest in.  While I think that was true in general a couple years ago, I don't think it is a true statement anymore.  However, let's suppose that there is a level of issuer and systemic risk to ETNs that you don't want.  The Elements products seem to defeat that argument as they are when all is said and done, backed, really owned, by the Swedish government.  Visit their site to find out more at:

https://www.elementsetn.com/productspage.aspx?subsection=prod9

This Seeking Alpha article gives a good summary of Agriculture funds: http://seekingalpha.com/article/64802-which-of-the-6-agriculture-etfs-is-best

And this Investopedia article is a nice summary about wheat as well: http://stocks.investopedia.com/stock-analysis/2009/The-Upcoming-Wheat-Crisis-GRU-DBA-SYT-JJG0702.aspx

CME info on wheat and corn: https://www.cmegroup.com/trading/commodities/grain-and-oilseed/wheat_quotes_openOutcry.html (click over to the corn)

A nice chart regarding wheat: http://www.chartsrus.com/chart1.php?image=http://www.sharelynx.com/chartstemp/free/chartind1CRUvoi.php?ticker=FUTKW

Interestingly, grains are already apparently headed for the black market: http://boards.fool.com/message.asp?source=isesitlnk0000001&mid=28182015&mrr=0.50

And this tidbit is worth some thought: http://www.fool.com/investing/general/2009/10/06/what-do-10-billion-people-mean-for-your-investing-.aspx?source=itxsitmot0000001

Now the risk is that the cost of producing wheat and corn, ag in general, comes down and the price level remains the same or falls more.  While this is unlikely, it is not impossible.  There is some argument for another round of deflation.  If that occurs, the cost of fuel, machinery and fertilizer could fall.  If for instance the Chinese allow the Yaun to rise 30-40% in a one off movement, then allow it to trade in a range tied to the dollar and/or some currency basket, we could see prices drop short term- quickly. 

Over a longer period of time, the demand for wheat and corn is increasing, and supply by any measure will not be able to keep up over the coming decades until newer methods of cropping and a cut in using agricultural land to grow bio-fuel occur.  Politics should get in the way there until the next large fight with starvation.  Sad but true.

I like wheat and corn to add about 50% from here within one to three years, and possibly more ongoing, quite a bit more.

4 Comments – Post Your Own

#1) On December 23, 2009 at 3:16 PM, Option1307 (29.76) wrote:

Some good information here, I have been looknig at the same thing myself recently. Haven't started buying yet, just doing more research etc and looking around. I really love the Elements ETN's in general, and I agree withyou that they do seem relatively safe.

I likely won't buy anything just yet, rather wait a little bit longer until we get something of a overall pullback. However, if that doesn't happen in the early new year, I might just go ahead and start accumulating some Ag/grain/etc.

Thanks for the info, great stuff.

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#2) On December 23, 2009 at 5:27 PM, leohaas (32.95) wrote:

"With corn and wheat getting to market at below the price of production if I have learned one thing from the farmers that I know it is this. It won't last."

Not so fast. Farm subsidies keep supplies way larger than demand. That keeps prices down (OK, go ahead with a political rant here...). But maybe the move to E15 gasoline will increase the demand for ethanol, and therefore corn!

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#3) On December 26, 2009 at 12:08 AM, kirkydu (93.72) wrote:

leo

First, Merry Christmas. 

Second, if corn demand goes up, as it probably will in the short run since we are doing the silly dance with ethanol, then corn prices will go up, especially since farmers are in the process of reducing supply, either voluntarily to produce other cash crops with higher prices now or involuntarily because they are having a hard time financing. 

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#4) On December 29, 2009 at 1:09 AM, Bkeepr100 (< 20) wrote:

5 to 7% of this years' total corn crop is still out in the field in USA and is a total loss.  Carryouts are tightest in years on corn, worldwide.  Input costs have already gone up...grain prices will follow.  Watch for weather problems in Southern Hemisphere.

 

Yes, I am a farmer. Market might get tighter in the grain(s) supply over the next year or so.

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