Profiting From the Death of Corn Prices

One of my developing theses is to profit from the demise of corn. All of these stupid farmers planted corn last year, due to drought induced price hikes. Over the past year, corn is down 27%, a great boon to companies that deal with corn inputs.

Corn is used to feed chickens, so this is a no brainer trade. Companies like PPC, SAFM benefit, directly. And, restaurant chains who sell chicken, like BWLD and BAGR, benefit from cheaper cheaper wings, widening gross margins.

Also, ethanol producers are benefiting. My favorite play, by far, is GRPE. Other ethanol plays include ADM, BIOF, PEIX and MGPI.

BG is interesting too.

PENX is a very, under the radar, starch play–that is soaring due to lower inputs.

ANDE makes the grain elevators and they’ve been on fire.

There are a lot of outlier plays that could catch fire, if the price of corn continues to drop. However, be careful of this trade reversing. If the corn crop isn’t as great as everyone thinks it’s going to be, everything I just said will occur, but inverse–like a triple inverse ETF from hell (extra Direxion). Last year, consensus opinion stated that corn prices had to go up because of drought. I viewed that as simplistic and built a monster position in PPC, around $4. Soon enough, after the harvest, the price of corn collapsed and PPC took off like a wild mongoose in a field filled with cobras.

I am throwing some mixed signals here, but that’s the nature of the market. As of now, however, companies who have to buy corn to produce a product are in a sweet spot. It’s also worth noting, cattle prices collapsed last year, because ranchers were slaughtering their stock early, to avoid feeding them. Well, since then, the price of cattle has soared to new highs, due to supply/demand constraints. It doesn’t take a rocket scientist to figure out steak prices will be coming down soon.

The increase in volume, due to lower food prices, is bound to help grocery store stocks, like WFM, NGVC, FWM, WMK, IMKTA, KR and SVU. There’s a reason why these stocks have been soaring. Now you know.

Oh, one more thing, wholesale food distributors, like UNFI, CORE and SYY work too.

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