- Grain stocks trade on a long-term cyclical basis. As prices for grains rise, farmers plant more land for grain products until oversupply is reached and prices decline. Buying grain stocks requires a long-term outlook because prices tend to rise for a number of years before peaking. Occasionally, bad weather causes a short-term spike in prices. However, consumers will substitute one grain for another as much as possible, curtailing the effects of the shortage. For this reason it is always a good idea to buy several grain stocks, a diversified portfolio of grain stocks, or the products and services that grow grain stocks.
The best way to buy pure grain plays is through a diversified fund that buys many grain products. These are called exchange traded funds. Exchange traded funds are passive funds that buy and hold specified grains. Examples of exchange traded funds that hold grain commodities include the Powershares Agriculture DB ETF (symbol DBA) or Elements MLCX Grains Index (symbol GRU). - Because grain commodities are traded on the commodity exchanges and there are no direct grain stocks to purchase besides exchange traded funds, most stock traders find it advantageous to purchase stocks of companies and products that produce grain stocks. This is similar to investors seeking to buy gold-producing company stocks as a play on gold. Agricultural commodity companies are a specific industry group of Standard & Poor's. See Resources (below) for help in finding specific companies.
- The most popular way to buy grain stocks is to buy the commodity of the product that produces the grain. This means the purchase of fertilizer stocks and other chemical additives used in producing grain. Fertilizer stocks are an appealing choice because the benefit of fertilizer is so great that farmers can pay very high prices for it and recoup the cost at harvest during a period of high prices. Find fertilizer stocks in the same list as farm-product producers.
- Advertisement -
- Advertisement -