Corn Price Surge Update: How Bad is the Drought?

Tue, Jul 17, 2012

The best agriculture investment to make right now is still the best agriculture investment to make right now.

Earlier today the Washington Post provided further evidence we’re on the right side of this boom and (eventual) bust.

The WP proclaimed this morning drought in U.S. reaching levels not seen in 50 years, pushing up crop prices:

A drought gripping the Corn Belt and more than half the United States has reached proportions not seen in more than 50 years, the government reported Monday, jacking up crop prices and threatening to drive up the cost of food.

Though agriculture is a small part of the U.S. economy, the shortfall comes as the nation struggles to regain its economic footing. Last week, the Agriculture Department declared more than 1,000 counties in 26 states as natural-disaster areas.

About 55 percent of the continental United States is now designated as in moderate drought or worse, the largest percentage since December 1956, according to the National Climatic Data Center, and the outlook is grim.

The update from the leading newspaper is just further proof it’s too late to trade the drought/agriculture boom storyline.

Furthermore, independent analysis is revealing much of the drought, although bad, could be another case of media overhyping a problem with many solutions which are already being applied.

Consider this. DailyPundt asks “what ‘record breaking drought?” and finds the surprising answer.

Here’s the University of Nebraska table drought we now call the Dust Bowl:

In 1934 there were officially “severe” and “extreme” drought conditions across the country and most of the country’s prime agriculture regions were in the heart of it.

Jump ahead and the current drought doesn’t seem nearly as bad.

The University of Nebraska provides the following breakdown:

As you can clearly see, the drought isn’t nearly as bad.

Of course, it has been a little over two weeks since the map was published, but that’s not enough time to take moderate droughts to extreme droughts.

We continue to see the best agriculture investment to make right now is the one no one is making with a short agriculture exchange traded fund which goes up when crop prices go down…which they will.

It’s a lonely trade. Not many other investors are making it. Contrarian investors know that’s a good thing.

Good investing,

 

Andrew Mickey
Executive Editor, Contrarian Insights

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