Profit from the corn spike

published 9 July 2010

Early last week the soaring coffee price hit the headlines. Then it was corn's turn to spike amid a short squeeze. Having dropped by 20% this year, corn prices jumped 10% in one day last week, the biggest daily increase since 1988. Good weather in April had presaged a bumper year of crops and investors expected a planting report to confirm this trend. But it turned out that fewer acres than expected had been planted in May because of adverse weather and stockpiles are being depleted faster than last year. The bullish news was "a game changer", says broker US Commodities, and prompted a price surge as investors hastily unwound their bets.

The common factor in soft commodity spikes or falls is the weather, says Rowena Mason in The Daily Telegraph; note that the coffee boom was fuelled by a predicted 30% slump in Arabica crops. The weather makes these markets unpredictable and volatile in the short term, so betting on individual softs is risky. The best way to profit from agricultural commodities is via firms poised to exploit the long-term growth trend in the sector. Last week's MoneyWeek cover story contained some examples (see: The best way to play rising demand for agricultural resources).