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Wheat prices have been strong lately (attachment 1). We have been writing for some time that we expect a major bull market in The grains complex: corn, soybeans and wheat.
As the 10-year chart shows, wheat futures hit a 6-year high and look to be finally breaking out on the upside after a 6-year bottom formation.
We have been signaling, since August and again in September, that this “stealth” bull market is just Getting started. This offers investors with the potential for some major medium to long-term gains, notwithstanding the short term volatility.
Argentina's Rosario grains exchange lowered its estimate of the South American country's soon to be harvested 2020/21 wheat crop to 17 Million tonnes, from 18 MM. tonnes previously, citing dryness and frosts.
In the U.S. it is so dry out west They haven't had a measurable rain in south central Kansas, in the Wichita area, in over a month, since September 11, 2020. It is dust-bowl-like conditions in eastern Colorado and southwest Kansas. Around 36% of U.S. winter wheat production is situated within areas suffering from drought by mid-October, according to the U.S. Department of Agriculture, with the most severe rating, exceptional drought, affecting relatively small areas in eastern Colorado and Texas panhandle.
It isn't just U.S. that is experiencing drought conditions, extreme dryness and heat in Russia is another factor. According to the U.S. National Oceanic and Atmosphere Administration, the three months from June to August made up the hottest summer ever recorded for the entire Northern Hemisphere.
Attachment 3 below displays the daily chart of the Teucrium Wheat Fund ETN symbol $WEAT (US$ 6.00)
A possible investment vehicle is the Invesco DB Agriculture ETF $DBA US$14.82. About 40% of the fund is invested in grains futures contracts (Attachment 4).
The window to get winter wheat crops germinated and established before dormancy is narrowing quickly. A continued lack of rain over the next few weeks could significantly hurt development.
Meanwhile, the coronavirus has driven strong demand for basic foodstuffs, in addition to the logistical challenges to harvests and impeded supply chains.
If farmers get higher margins on selling grains they usually do two things with the higher proceeds they receive: 1) buy fertilizers and 2) invest in farm machinery.
As concerns fertilizers, Nutrient Inc. (formerly Potash Corp.), $NTR (US$ 40.22) is an excellent stock (Attachment 5). It is the world’s leading supplier of potash and distributor (through retail network) of fertilizers. It pays a quartely dividend of US$ 0.45, currently yielding a very respectable 4.5%. And the dividend is currently deemed safe, as the retail division is doing very well.
On the farm machinery side Deere & Co. $DE US$ 240.06, Attachment 7, has already been having an excellent year in anticipation of the coming bull market.
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