It appears inflation could be around for quite some time as the U.S. Federal Reserve continues to try and stifle rising consumer prices with rate hikes. Investors looking for an inflation hedge may want to consider corn, especially if South American weather continues to push prices higher.
According to a Farm and Ranch Guide article, the rising tide of corn prices “have been pushing against the high $6 range in recent weeks due in large part to weather in South America.” Corn prices have risen about 6% within the past year, reaching a peak high of almost 30% last year after Russia invaded Ukraine before coming back down to earth in the ensuing months.
“We’re pushing up against resistance here again. That $6.80-$6.90 seems to be a firm point of resistance, but we seem to be testing it again just on South America’s weather,” said Allison Thompson, the new president of The Money Farm in Ada, Minnesota, noting that while rains have hit certain dry spots, there’s still more work to do.
Weather Delays on the Horizon
Combined with the ongoing conflict between Russia and Ukraine, weather in South America will continue to be a major price mover for corn. Brazil, in particular, will be closely watched, according to Thompson — this is crucial if the country wants to overtake the U.S. as the largest corn producer.
“Outside of that, we’re also starting to watch Brazil a lot more since they’re getting their second crop corn planting done,” Thompson said. “They’ve started, but they’ve been having a lot of weather delays (due to recent rains) and those weather delays look like they may be continuing this week, as well.
“And, of course, the way that gets pushed back, it definitely could get pushed into more of their dry season and those early developmental stages,” Thompson added. “It’s definitely worth watching here going forward and it’s definitely putting some risk premium into the market.”
For getting agricultural commodities exposure via corn, consider the Teucrium Corn Fund (CORN), which tracks three futures contracts for corn that are traded on the Chicago Board of Trade, including 35% second to expire contracts, 30% third to expire contracts, and 35% December following the third to expire. The various contract exposures help the fund limit the negative effects of rolling contracts, especially during a market in contango.
For more news, information, and analysis, visit the Commodities Channel.