3 Ways to Cash in on the No. 1 Commodity of 2013
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. 1 commodity 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), an exchange-traded fund (ETF) 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 as promising.
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. Simple inventory 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 best investments on Earth.
Inflation is also something to consider. The central banks of the world are firmly committed to pumping the global economy 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 be bullish on corn in 2013 and beyond. Here are three of my favorite ways to play this trend.
|Tecrium Corn (Nasdaq: CORN)
This ETF tracks the price of corn through the use of derivatives. Commodity-linked ETFs have been extremely popular with investors lately, because they provide access to market that had been previously limited exclusively to institutional traders and investors. Tecrium Corn has only been around for two years, but the fund is off to a great start.
With corn up 50% since its launch, Tecrium Corn has grown to $42 million in assets with average daily volume of 106,000 shares. With a 1.42% expense ratio, Tecrium Corn isn't exactly cheap, but as one of the few funds 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 (NYSE: JJG)
This ETF (tracks the Dow Jones-UBS Grains Index, 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 quite well.
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 a market 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 project earnings 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 corn.
Action to Take --> The bullish trend in food and agriculture is well in play. A growing global population, inflation and erratic weather will 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 to capitalize on higher food and corn prices.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.