If you are as pessimistic as I am about our overheating planet (sorry, Australia), you might as well try to make a buck from your gloomy disposition. While that might sound like a rallying call for alternative energy sources, I was thinking more along the lines of corn.
Last summer, corn prices surged more than 30 per cent after a dry heatwave in the United States occurred during a critical growth stage for corn, promising to devastate the harvest at a time when global demand was rising to record highs.
Investors, spotting an opportunity here, piled into investments that seemed tied to corn, particularly fertilizer producers and funds that followed futures contracts for corn and other grains.
But isn't a better approach to make these investments before the next dry heat wave comes? As in, now.
The New York Times splashed on its front page on Wednesday the alarming news that 2012 was the hottest year ever in the United States, beating the previous record in 1998 by an unusually large margin of a full degree Fahrenheit. But rather than look only at the recent past, the article ends with a hair-raising weather forecast:
"With the end of the growing season, coverage of the drought has waned, but the drought itself has not. [Jake Crouch, a scientist with the National Climatic Data Center] pointed out that at the beginning of January, 61 per cent of the country was still in moderate to severe drought conditions. 'I foresee that it's going to be a big story moving forward in 2013,'" he said.
Curiously, though, investors seem content to wait for dire reports from the U.S. Department of Agriculture before wading into the corn field.
The Teucrium Corn Fund (CORN), an exchange-traded fund that tracks futures contracts, has fallen 17 per cent from its high in August and has seen trading volume shrivel to a tenth of what it experienced during a frenzy in July.
The iPath Dow Jones-UBS Grains total return exchange traded note (JJG) has fallen 20 per cent from its high in July.
And even Potash Corp. of Saskatchewan Inc. – admittedly driven by more than just corn crops – has fallen 9 per cent from its high in July.
Let's hope the weather improves for farmers, and this year's corn harvest is bountiful. But if you can't get corn on your table, you might as well get a decent return on your investment.
David Berman