Indeed, the drop in the dollar's value has investors and speculators seeking physical commodities to park their funds in. This has caused the prices to expand in the grains sector, and when next year rolls around, you can expect that seed manufacturers will have priced next year's crop accordingly. So while the trading pits and the farmers are all banking money now, the next round of inflation is already being calculated into next year's margins.
And we can use those inflationary expectations to grow some profits of our own by investing in Monsanto Co. (NYSE: MON) - one of the world's largest seed producers.
Think of it as a "picks-and-shovels" play to capitalize on all of the farmers rushing to cash in on surging commodities prices.
Having grown up on a working farm in Oregon, I understand this all too well. Those days taught me a lot about hard work and patience. Four decades later, as I read news stories about the current travails of Russian wheat farmers, the memories of getting up on wet winter mornings for the pre-dawn goat milking - or having to drive a tractor when I was only six years old - engender a lot of empathy for the difficult challenges the wheat farmers face.
Wild fires are racing through unharvested wheat fields, the result of a Russian heat wave that has destroyed more than one-fifth of that country's wheat crop. In addition to causing the farmers considerable pain, the crop losses have caused wheat prices to double this summer.
This has spawned an export ban in Russia, which effectively removes the third-largest exporter in the world from the market. It's also created a major profit opportunity for U.S. investors.
Let me explain.
Canada-based Potash, the world's largest producer of potash, yesterday (Tuesday) rejected an unsolicited takeover bid from the Australia mining giant, calling the offer "grossly inadequate."
The fertilizer company also quickly adopted a so-called poison-pill defense to fend off would-be suitors, though it said it would be open to a transaction if the price were right.
Wheat rose to a 23-month high after Russia, the world's third-largest grower, announced a ban beginning Aug.15 that will last through the end of the year. Corn and rice prices also surged yesterday after Russian Prime Minister Vladimir Putin said a ban on those grains would be "appropriate" in light of skyrocketing prices.
Domestic grain prices gained 19% last week, faster than at the peak of the global food crisis in 2008. The ban includes wheat, barley, rye, corn and flour exports, according to the government decree that also set aside nearly $1.2 billion for stricken farmers.
In typical fashion, Deere continues to be conservative in guidance. And as I will explain below, the agricultural cycle this year is poised for a large upside surprise, as it is at the very beginning of a prolonged secular pickup.
The bottom line of Deere's performance last quarter is a prelude of things to come. Agriculture is zooming, and thus machinery in that sector is - and will continue - to command premium pricing. At the same time, global inflation is picking up slightly, but is still very subdued, which will help margins some more.
Still, there's reason to believe that corn prices will rebound.
The summer season could be particularly harsh following a better-than-average spring, and rumors that China is gearing up to make a huge purchase so far has helped keep corn prices afloat - and could even send them higher. But before that happens there are some substantial headwinds for the crop to overcome.
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Yara made a $4.1 billion bid for Terra in February, in an all-cash deal valued at $41.10 per share. Per their agreement, Terra can give Yara notice it intends to break the contract, giving Yara five days to provide a better offer. If the break-up goes through, Yara gets a cozy fee of $123 million.
CF came forward March 2 with a $4.75 billion bid -- $37.15 in cash and 0.0953 per share for each Terra share.
There's nothing like scarcity and supply disruptions to fuel violent price spikes. And there's nothing like the basic human needs for food and water to light that fuse.
Today's world food supplies run on razor-thin inventories.
While the food riots of 2008 have all but disappeared from our short-term memories, the threat of them returning grows stronger with every passing day.
According to the World Bank, food prices increased 83% between February 2005 and February 2008. In April 2008, when the United Nation's World Food Programme warned that a "silent tsunami" of hunger was sweeping the globe because of soaring food prices, it was more than just a clever sound bite tossed off by a bureaucrat: It was a warning that the world's poor were being squeezed as increasingly higher portions of their family incomes were being spent on the food they required for their very survival.
Improved fertilizers will be a key to the solution of this problem. And they won't just promote crop growth - savvy investors who fertilize their portfolios will be pleased with their profit harvest.
Let me explain ...
To discover how to profit from zooming fertilizer prices, please read on....
Take such traditional "breakfast club" commodities as sugar, cocoa, coffee and orange juice. They all enjoyed a great year, despite bearish forecasts of doom and gloom. Sugar and cocoa even traded at multi-decade highs.
Similarly, cotton got a bad rap going into 2009, though it motored into the end of the year with a tidy profit, rising on the standard laws of supply and demand.