The weather guy said the temperature hit 106 degrees in Baltimore over the weekend.
Heat waves in Maryland are akin to taking a damp pair of jeans out of a hot dryer, pulling the waist over your head, and attaching one leg to the exhaust pipe of a diesel bus.
But at least we aren’t on fire…
Last week this same heat wave was burning up the West, which is in desperate need of rain.
In Colorado, the worst wildfire on record destroyed more than 350 houses. In nearby states, the summer crops of soybean and corn have withered in the fields.
Corn on Fire
A month ago, commodity analysts were proclaiming the United States would have a record corn yield this year.
Farmers planted more corn this year than they have in 75 years. We were looking for a bumper crop.
That was before the searing drought hit the Corn Belt.
The USDA says eight percent of corn planted this year won’t be harvested. That’s up one percent since June 12th.
The next report will be worse.
Some are saying it will be the poorest corn crop in 35 years. Fifty percent of the crop in the corn-rich states of Missouri, Kansas, Indiana, and Kentucky is in fair-to-poor condition.
On top of this drop in future supply, the current corn inventory has fallen to 3.15 billion bushels in the three months to June 1st. This is the smallest inventory number since 2004.
Expect the price of corn to continue to go up:
Some ethanol plants are already shutting down.
Due to the high prices of corn, they can’t make money.
Societe Generale SA is predicting that prices will go up even more:
Corn may average $7 a bushel in the third quarter, up from an estimate of $6.20 a bushel. The grain may average $6.46 in the fourth quarter, compared with an estimate of $5.72. Corn for December delivery was at $6.335 a bushel by 11:30 a.m. Friday on the Chicago Board of Trade.
You have to be careful when buying the crop news, as it gets priced into the market almost instantly, so you might want to wait for a pullback before buying the ETF Teucrium Corn Fund (CORN).
Time to revisit our agriculture stocks…
Embrace the Hate
One seed company that has been off for the past five years announced a very good quarter last week.
Monsanto gained market share in both U.S. soybean and corn seeds.
Corn seeds sales were up 34% from the same quarter last year.
The company earned $1.74 per share on revenues of $4.22 billion, compared to EPS of $1.28 on $3.6 billion in sales a year earlier.
In fact, Monsanto has made almost as much in three quarters this year as it made in all of 2011.
Monsanto by the Month
Monsanto has never fully recovered from the crash of 2008.
In the chart above, each tick is a month. As you can see, Monsanto is trending upward.
Buy Fertilizers: CVR Partners (UAN)
High crop prices drive up the price of fertilizers — and the companies that make them.
CVR Partners produces nitrogen fertilizers in North America. Its nitrogen fertilizer products include ammonia and urea ammonium nitrate.
The stock is up 20% in the last two weeks, but still well off its highs of $31.
UAN will also benefit from the low cost of oil and natural gas.
The company has a market cap of 1.74 billion, quarterly revenue growth of 36%, and earnings growth of 80%… and it pays a healthy dividend yield of 8.50%.
All the best,
Christian DeHaemer
Check us out on YouTube!Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.
