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Macro View

Thanks to record heat across much of the crucial grain growing regions of the U.S., prices for a number of key staple products are soaring. Front month wheat contracts have added almost 33% in the past few weeks while comparable contracts in corn have gained about 50% in a similar time period.

It also doesn’t help that other nations around the world are seeing similar issues with their crops too. In fact, Russia’s grain crop is also plunging, offering little relief from abroad.

Some are also forecasting that this boost in prices could also add to costs at the pump (due to heavy ethanol use) or boost meat prices since some grains are very popular as feed for everything from chicken, to pork and cattle (read Is it Time to Buy the Livestock ETFs?).

Thanks to these trends, worries are beginning to build that a full blown crisis could be on our hands at some point soon, forcing many investors to readjust their portfolios to match this new reality. However, there are a number of ways to tackle this problem from an investing standpoint including the following options:

  • Buy futures/ETFs that are tracking grains: Products like JJG or (CORN - ETF report) offer investors exposure to grain futures and could be big winners should the drought continue. However, many of these products have already soared in the past few weeks. How much in gains could be left?
  • Invest in the fertilizer/nitrogen sector: Companies like Terra Nitrogen could be big winners if farmers demand more products to boost yields. Also, many may be able to afford more spending in this department, especially if they are seeing high prices for their (limited) harvests. Investors can also take a basket approach to the agribusiness space by looking at instead.
  • Short commodity end users: Firms that have high exposure to grain or general food prices could be in trouble as their main product costs soar. Companies in this segment could include Kellogg’s (K - Analyst Report), Tyson Foods (TSN - Analyst Report), or in the ETF world, the Food & Beverage ETF (PBJ - ETF report).

What do you think? How do you play this brewing crisis from an investment perspective?

Do you like any of the options above or do you believe there is a better way to approach the problem?

Let us know what you think in the comments below!

(also read Beat the Heat with These Three ETFs)

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