Investors interested in agricultural commodities are happy to learn both soybean and corn prices are on the rise. Between March 1 and May 13, soybean futures increased $2.00 per bushel or plus 23%. Corn futures were up 10% or $0.35 per bushel between March 31 and May 13.
For soybeans, basis levels have weakened over the same period resulting in futures prices increasing more than cash prices. Corn basis levels have been steady since the end of March.
USDA Report Helps
The price rally has benefited from the USDA’s May WASDE report, which contained lower forecasts for the size of South American corn and soybean crops. Less output from Brazil and Argentina increases prices overall.
Furthermore, with drought conditions continuing in Brazil, crop sizes are likely to decline even further moving forward putting even more upward pressure on prices.
Added to that, U.S. 2016 corn exports are expected to be 75 million more bushels than forecast last month. Soybean exports are expected to be 35 million bushels more than was forecast in April.
As the price of grain rises, some stocks benefit including at least one that may surprise.
Monsanto sells seeds. Higher prices for corn result in more planting. That helps Monsanto’s bottom line. In addition, Monsanto executives said they anticipate growth from new product offerings and expansion into new markets.
In fact, Monsanto expects 80% of its earnings over the next 3 to 4 years to come from new products. That leaves just 20% tied to the price of commodities like corn and soybeans. Still that’s a significant chunk of change.
Agrium supplies dry and liquid nitrogen, phosphate and potash fertilizer products to the farming industry. Another huge area for the company involves its controlled-release crop-nutrient technology. All this will be in demand as farmers plant more crops.
The role of fertilizer in crop management should not be underestimated. When prices are high farmers want to plant every inch of every field and maximize the yield per acre. The quickest and most efficient way to do that is by using fertilizer.
This company converts corn, oilseeds and other plant products into food, animal feed, chemicals and energy. Higher grain prices result in higher food prices and more profit for ADM.
In addition, ADM operates a transportation network that connects crops to markets around the globe. Lower oil prices plus higher grain prices help make that part of the business more profitable as well.
Following similar lines of thinking above, Deere benefits when farmers want to plant more crops – which they do when prices are high. There are two ways Deere & Co. gains. One is when farmers buy more equipment to plant more seed and manage more acreage.
The other happens when grain is sold, profit is realized and farmers want to invest for following years by buying equipment ahead of the next planting season.
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Rising grain prices mean rising food prices – and that makes McDonald’s something of a counter-intuitive play. But not really. The fact that fast food restaurants like McDonald’s don’t have enough wiggle room in their tight margins to raise prices leaves them with only one option – more volume.
Fortunately, as rising grain prices cause rising food prices families are more likely to go to McDonald’s for a quick, inexpensive meal than a fancier restaurant or, in many cases, even a home-cooked meal that costs more to prepare.