One commodity in particular has been on a steep downward slope since the spring.
But winter is coming faster than you think.
A potential early freeze could cause a slow in production.
And when prices reverse course as a result, a well-executed trade could deliver extraordinary profits for clued-in investors.
Here are two ways to get on board before the run-up begins.
An Abundance of Kernels
The vast majority of corn grown in the United States is used as the main ingredient in livestock feed or processed into a multitude of food and industrial products, such as starch, sweeteners, corn oil, beverage and industrial alcohol, and fuel ethanol.
So corn is a pretty vital component in the global food industry.
Luckily, there’s currently plenty of supply…
According to government statistics, American farmers will collect the biggest corn crop ever this season, as three months of rain and mild weather created close to ideal growing conditions.
However, this excess supply – outpacing demand – has sent corn prices off a cliff.
The price of corn has been under sharp selling pressure since May. Corn futures on the Chicago Board of Trade tumbled 4.9% last week to $3.385 a bushel, matching the lowest level for the most active contract since 2010.
Hedge funds, which are large traders of corn and other commodities, cut bullish wagers on agricultural commodities to the lowest level since January.
It’s not just corn, either. According to data from the Commodity Futures Trading Commission, combined net bullish positions across 11 agricultural products fell 14% for the week of September 9.
The situation could change quickly, however.
You see, an early freeze and excessive rain in the Corn Belt could threaten to reduce corn yields before harvesting begins at the end of this month in most of the northern half of the Midwest.
Plus, the U.S. Department of Agriculture is now predicting that global consumption will rise 2% this season to 971 million tons.
Here are two ways investors could “harvest” the most from the coming reversal…
Corn Harvest Play #1: Slow and Steady. Unless you’re a professional trader, timing the bottom of the market is highly challenging.
A better recommendation is to enter the market gradually from the long side and build one’s position until the fundamentals have changed – or when more than two major technical indicators signal a “Buy.”
Corn Harvest Play #2: Contango in the Corn Field. We all know we can’t actually invest in spot corn, but the corn futures contract is typically in a contango (an upward sloping yield curve).
What that means is, when it comes time to roll your futures position, you’ll be faced with the cost of the roll yield.
Should you not want to pay initial and margin maintenance on futures, you can access the ETF market, such as the Teucrium Corn Fund (NYSEA: CORN).
Nevertheless, the contango effect also plays a role in corn ETFs, such that you won’t reap the full benefits of a rise in corn prices unless you close out your position at a profit.