Soft commodities have surged on the worst drought in half a century, and now it is time for farmers and agribusiness exchange traded funds to capitalize on the higher prices.
“Corn farmers are actually set to benefit from a 50% increase in the price of their crop,” Nikoleta Panteva writes in an IBISWorld study. “Corn farmers experience strong and inelastic downstream demand from wide range of food industries, so a jump in prices will not sever ties with buyers.”
The Teucrium Corn Fund (NYSEArca: CORN) rose 29.6% over the past three months. [Higher Food Prices Feed Commodity ETF Strength]
The USDA estimates that output will dip 15% from 2011, which will not help offset growth from price gains. [Will Corn ETF Break Out Again?]
Additionally, soybean farmers will also benefit off the drought as soybeans and corn are interchangeable as livestock feed – higher corn prices will force a switch to soybean as a less expensive alternative.
The Teucrium Soybean Fund (NYSEArca: SOYB) gained 16.8% over the last three months.
Agribusiness ETFs like the Market Vectors Agribusiness ETF (NYSEArca: MOO) and PowerShares Global Agriculture Portfolio (NYSEArca: PAGG) could also benefit as they provide equipment to farmers trying to capitalize on the high prices.
However, industries that utilize corn will suffer from the higher prices.
“Corn is also used in a variety of syrups and sweeteners, including high-fructose corn syrup, which is often used in soft drinks snacks, candy and other processed foods,” Panteva added. “Consequently, when the price of commodity jumps, input costs for operators in the Syrup and Flavoring Production industry increases as well.”
For instance, PowerShares Dynamic Food & Beverages (NYSEArca: PBJ) could take a hit as some of its top holdings are heavy corn syrup users, such as Coca-Cola, Pepsico and Hershey to name a few.
For more information on corn, visit our corn category.
Max Chen contributed to this article.