HOW TO PLAY IT – Navigating a U.S. Midwest drought

by admin on July 22, 2012


NEW YORK, Jul 20 |
Fri Jul 20, 2012 2:48pm EDT

NEW YORK, Jul 20 (Reuters) – Thomas Grisafi, the commodities
trader in Indiana, usually has to demeanour outward his window to see
the goods of the misfortune dry weather to strike the Midwest corn belt
since 1956.

He trades any day from the 100-acre plantation he paid for last
year in DeMotte, Indiana, the locale of reduction than 4,000 people about
65 miles south of Chicago. The tiny stand of corn he planted
this year has alr eady sh r iveled as well as died.

But he’s still creation hundreds of bets any day which the
price of corn is starting to dump after jumping scarcely 50 percent
since early June, stoking fears of tellurian food inflation. Fo r
story, click [ID: n L2 E8IK1DB].

“America isn’t set up to run upon $8 corn. If you get to $9 or
$10, you won’t stay there for long,” he said. Corn futures
settled somewhat upon top of $8 upon Thursday.

The harsh dry weather in the Midwest is prompting
investors to assume upon the goods which near-record corn
prices will have via the extended economy. Fo r story,
click[ID: n L2E8IHG1S]

Corn is the vital member in the prolongation of dishes ranging
from beef to breakfast cereal. While analysts envision which most
food companies have been insulated from short-term goods interjection to
their hedging strategies, the spike in corn prices could eat
into corporate gain over the subsequent 6 to twelve months as
hedging trades expire.

That’s heading analysts as well as investors to reposition their
strategies for all from tractor manufacturers to options
contracts.

Here have been the little of their suggestions upon how to fool around the
effects of the single of the misfortune droughts in memory:

FOOD AND FARM PRODUCERS

Diane Geissler, an researcher during CLSA, the brokerage organisation owned
by French bank Credit Agricole, s assist which food companies like
General Mills as well as Ke llogg K .N should mostly sidestep
the goods of the drought.

But, she cautioned, “the closer you have been to the tender commodity
the some-more unprotected you are.” After the outing to the Midwest last
week, she downgraded her perspective upon beef producers Smithfield
Foods as well as Tyson Foods. Smithfield Foods, for
instance, gets 71 percent of the revenues from pig production,
according to Thomson Reuters data.

While the association has depressed twenty-three percent given the begin of
the year as well as right away trades during the cost to gain comparative measure of
8.4, Geissler pronounced which the marketplace competence not nonetheless be fully
factoring in the repairs to the corn crop.

“I consider which this is the genuine deal, as well as the towering prices
are expected to sojourn sincerely sticky,” she said.

Thilo Wrede, an researcher during Jefferies, pronounced which ConAgra
Foods is an additional association which is some-more unprotected to meat
and pellet prices than the competitors, in partial given it may
not be in the upon all sides to pass upon aloft costs to its
lower-income consumers. The company, which is during the back of brands like
Chef Boyardee, Egg Beaters as well as Healthy Choice, has seen its
stock tumble scarcely 7 percent given the begin of the year.

Wrede has the some-more auspicious perspective of Diamond Foods
, whose largest bearing to corn prices comes in the
form of the Pop Secret code of x-ray popcorn, he said.

He has the ‘hold’ letter of reference upon the batch in light of its
recent accounting issues which compulsory the association to restate
its new monetary reports. The batch had depressed scarcely 43
percent this year by Thursday’s close.

Eric Marshall, the account physical education instructor during Hodges Capital, is focusing
on plantation machine whilst he has been offered positions in
companies unprotected to beef as well as dairy prices. He’s not prolonged ago added
to his upon all sides in Titan Machinery in his $176 million
Hodges Small Cap fund. “You’ve seen companies like
Deere conflict to headlines, though you consider which Titan
Machinery could be the association which could essentially good from
this,” he said.

That’s given Titan Machinery’s business have been concentrated
in the Western apportionment of the corn leather belt in states similar to Nebraska,
the Dakotas, as well as horse opera Iowa which have not been influenced by the
drought. [ID: nL2E8IJ9ER]

These farmers might produce twenty percent reduction this year than last,
but could still have jot down incomes given of the tall prices,
Marshall noted. That, along with auspicious taxation diagnosis of the
purchase of plantation equipment, could lead to an enlarge in sales.

Shares of Titan Machinery have been down twelve percent over the last
three months as partial of the greeting to the dry weather as well as traffic during a
price to gain comparative measure of 14. Shares have been up 34 percent since
the begin of the year.

COMMODITY TRADES

Grisafi, the line merchant with the Indiana plantation who is
a lso t he boss of traffic organisation Indiana Grain Co., attributes
the tall corn prices to both the dry weather as well as the lingering
effects of the tumble of MF Global, the organisation led by former New
Jersey Gove r nor Jon Corzine.

“A lot of farmers as well as ranchers who used to operate the lot of
options haven’t been you do it given they’ve mislaid conviction in the
market,” he said. “Now yo u see people scrambling as well as that’s the
price movement we’ve been see i ng.”

Grisafi, who calls himself the “speculator” who is “in as well as out
of the marketplace the million times the day,” pronounced which he expects corn
prices to tumble as the marketplace calms. He’s mostly shopping 3-month
puts, which gives him the right though not requisite to sell corn
futures during somewhat reduce prices.

Peter Sorrentino, portfolio physical education instructor of the $94 million
Huntington Real Strategies account (HRSTX), pronounced which he is getting
closer to offered his prolonged positions in corn. “A lot of income is
flowing in to the marketplace right right away as well as it’s removing out of hand
and distorting prices,” he said.

He likes Archer Daniel Midlands instead given the
company will be means to pass upon aloft corn prices as an ethanol
distiller, he said. The company’s shares were down 4.6 percent
for the year by Thursday’s close. They traffic during the cost to
earnings comparative measure of 13.7 as well as come with the division produce of 2.6
percent.

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