How To Profit From The Amber Waves of Grain

O beautiful for spacious skies, For amber waves of grain, For purple mountain majesties Above the fruited plain! America! America! God shed his grace on thee And crown thy good with brotherhood From sea to shining sea! Equity markets have been nothing short of rocky, like the "purple mountain majesties", but there does appear to be some money to be made in the "amber waves of grain." Arlan Suderman, a Grain Market Analyst for Farm Futures magazine & FarmFutures.com has tweeted that the grain commodities, namely wheat, corn, and soybeans, have all been moving higher this morning, as money appears to be flowing into this asset space. Suderman tweeted that there is buying interest in corn this morning, up 20 to 30 cents this morning, and the same goes for soybeans. Suderman remarked that "end users are quite nervous; stocks based on expectations of rationing." Wheat is also seeing buying interest this morning, up 10 to 20 cents based on talk from the floor. This all comes back to the fact that there are close to 7 billion people on this planet, and population growth around the world is continuing to go higher, not slower. In the past 200 hundred years, the the world's population has gone from 1 billion to the near 7 billion it is now. “In the 1960s and 1970s, people expected a population bomb,” said David Bloom, an economist at Harvard University in Cambridge in a telephone interview to Bloomberg. “Now, we have mini-bombs going off in the most fragile parts of the world. Issues of inequality and poverty may spill over from less- developed countries, which will not be good for their neighbors or the rest of the world.” Money needs to go somewhere. We are seeing it with gold, and to a lesser extent, silver. Money will eventually flow to natural resources, as the world has a finite number of resources. Although grains can be replanted, the demand for each wheat straw continues to go up with a rising population. We saw it in the earnings from Potash POT at the end of July. Potash's CEO Bill Doyle talked about the constraints being put on farmers around the world. “The continuation of strong fertilizer demand combined with the limitations of global production, especially in potash, resulted in tight fertilizer markets and rising prices for our products,” said Potash Corp President and Chief Executive Officer Bill Doyle. “With farmers committed to increasing yields and capitalizing on the unprecedented economic opportunity, we worked to keep pace with growing demand, which resulted in a record quarter for our company. We believe our ongoing investment in expanding potash operational capability is playing an integral role in the world's food story, and we demonstrated our increased ability to deliver – for our customers and our shareholders.” As such, Credit Suisse upped the price target on Potash based off the demand we are seeing for agricultural commodities, which in turn leads to better pricing for potash and other nutrients, as farmers try to increase yields on their crops. It does not look like the agriculture trade is going anywhere, at least for the next few years. The amber waves of grain are telling us that. ACTION ITEMS:

Bullish:
Traders who believe that grains will continue to see strong demand might want to consider the following trades:

• Go long agricultural names, such as iPath Dow Jones-UBS Grains Subindex Total Return ETN JJG, PowerShares DB Agriculture Fund DBA and Market Vectors Agribusiness ETF MOO.

• Consider derivatives from the agricultural play, such as Potash, Mosaic MOS, Agrium AGU and Monsanto MON.

Bearish:
Traders who believe that grains are not going to see continued inflows may consider alternate positions:

• If the world is able to solve the food crisis, all of the hopes for these names are crushed. That is what the future for all of these assets is based off of. Short at will.
  
  

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