There are very few things that affect every human being on the
planet. But regardless of age, race, gender or religion, only one
thing ties everyone together -- the need for food.
That's why my No. 1commodity for 2013 is corn.
Corn is coming off a blistering performance in 2012, jumping
more than 50% this summer after an historic drought hit the Midwest
and wreaked havoc on production and production forecasts. Take a
look at the big jump below in
Teucrium Corn (Nasdaq: CORN)
, anexchange-traded fund (
) that tracks the price of corn.
But even though this summer's big gain was fueled by an
unpredictable weather event, the long-term trend in corn looks just
For one, the U.S. Department of Agriculture (USDA) is predicting
domestic production of 10.72 million bushels of corn for 2013,
barely pacing ahead of demand projections of 11.2 billion. But with
domestic supply and demand remaining tight, production would have
to come in at 14 million bushels to have a big effect on corn
prices, according to estimates from Purdue University extension
agricultural economist Tom Hurst. Second, that USDA projection of
10.72 million bushels is hardly a given if bad weather continues to
plague the Midwest.
In addition, Minnesota, Iowa, South Dakota and Nebraska -- four
of the top six corn-producing states -- are in extreme to
exceptional drought, the two worst categories, according to
research from Agweb. To make things worse, 2012 was the third year
in a row of low-rain for Midwest, which has many analysts and
farmers playing the trend and calling for more droughts. Keep in
mind that corn inventories are running at record lows after last
year's drought. Simpleinventory rebuilding could also be a major
driver of growth in the new year.
Beyond 2013, global population growth and resource consumption
are having a very real effect on the price of corn and food. In
fact, this one of the trends StreetAuthority's Nathan Slaughter
analyzes in his Scarcity and Real Wealth advisory. Because critical
inputs are in short supply and worldwide demand is exploding, rare
assets such as corn are easily some of the bestinvestments on
Inflation is also something to consider. The central banks of
the world are firmly committed to pumping the globaleconomy with
liquidity to stimulate growth. Although we haven't seen it yet,
this is a highly inflationary policy that supports hard assets such
as corn, agriculture and food.
So when you add it all together, there are plenty of reasons to
bebullish on corn in 2013 and beyond. Here are three of my favorite
ways to play this trend.
Tecrium Corn (Nasdaq: CORN)
ThisETF tracks the price of corn through the use
ofderivatives . Commodity-linked
have been extremely popular with investors lately, because
they provide access tomarket that had been previously
limited exclusively to institutional traders and investors.
Tecrium Corn has only been around for two years, but
thefund is off to a great start.
With corn up 50% since its launch, Tecrium Corn has
grown to $42 million in assets with average dailyvolume of
106,000shares . With a 1.42%expense ratio , Tecrium Corn
isn't exactly cheap, but as one of the fewfunds providing
exposure to corn prices, it's in line with its peers, but
still less expensive than trade derivatives.
iPath DJ-UBS Grains TR Sub-Index ETN (
This ETF (tracks the Dow Jones-UBS GrainsIndex , an
index comprised of corn, beans and wheat. This would be a
more diversified play on agriculture, providing equal
exposure to these three commodities. This fund was launched
in the fall of 2007, before the financial crisis, but in
spite of all that volatility and uncertainty, it has done
Assets under management now top $100 million at $109
million, with an average daily volume of 73,000 share and
providing good liquidity. And with an expense ratio of
0.75%, 25% below its category average of 1.17%, this grain
ETF looks quite cheap.
Ingredion (Nasdaq: INGR)
Ingredion changed its name from Corn Products this year. The
company specializes in corn-syrup sweeteners, with a product
list that includes glucose corn syrups, high-maltose corn
syrup and high-fructose corn syrup. Ingredion sells its
products to food companies that use them in their food
products (think ADM and Kraft).
The company operates in six continents and has amarket cap
of $.4.9 billion. The stock has rallied more from the drought
in the Midwest than corn prices. It's up 25% on the year
compared to corn's 5% gain. Analysts projectearnings growth
of 18% from last year. But in spite of these gains,
Ingredion's forward price-to-earnings (P/E ) ratio of 12 is
still a discount to its peer average of 14.5.
Risks to Consider:
Corn has seen big gains in the past two years, with prices
trading near all-time highs. Production has also aggressively swing
higher, strongly rebounding from last year's drought as higher
prices incentivized farmers across the world to plat more
Action to Take -->
The bullish trend in food and agriculture is well in play. A
growing global population, inflation and erratic weatherwill all
continue to drive food and corn prices higher. While that hurts
consumers, it also creates an opportunity for investors to benefit.
These three investments are all great ways tocapitalize on higher
food and corn prices.
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