In recent days the U.S. drought has left the headlines because it rained once or twice and most of the money in the futures market has been made by those that, frankly, make the headlines. On a general risk-off day which saw commodities, including most grains, drops across the board along with equities, one thing that stood out to me was the price movement in Soybeans. At 1767.40 a contract, up nearly half a percent, that constitutes a high for the year.
For those that have not been paying any attention, the price of soybeans has risen nearly 70% this year, rallying right from the turn of the calendar only to pause briefly here and there as some speculative profit was pulled off the board. But, for most of the year, and now today, soybeans have been a harbinger of bad things to come. This increase has not fully taken into account the reality of the situation in the U.S. farm belt, which will be getting some much needed rain this week thanks to Hurricane Issac. Appropriately named, is this storm, the equal and opposite reaction to an extreme drought that is likely to be the worst since the Great Depression for many part of the Mid-West. the latest news, not explicitly covered by the U.S.D.A. reports is that yields could be down as much as 50% year over year.
The same is true for corn and could be just a damaging to this winter’s wheat crop as well. Check out the iPath Dow Jones UBS Agriculture Total Return Sub-Index ETN (AMEX:JJA) which is heavily weighted to soybeans and corn if you’re looking for a way to play this.
The ramifications of these supply curtailments have not been priced into these markets, not at these levels.
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