Farmers growing winning stocks?

Rick_PendergraftLast week in this space I wrote about the grain selloff, how I wasn’t convinced it was warranted, and that I was looking for a rebound from the group. This week I am in Indiana for a visit, which is allowing me to get a first-hand look at some things that could truly impact investment opportunities.

What I have found has given me some valuable insight into what could happen with this vital part of the market, and valuable insight usually turns into profits…

Since last week’s article, little has changed with regards to grain prices. Corn and soybeans both lost ground again last week, but wheat managed to gain a smidge to halt a nine-week losing streak.

The sentiment continued to slip as large speculators became a little more bearish toward corn, soybeans and wheat. That is all well and good, but the reason I wanted to do a follow up is because I have been able to look at the fields here in Indiana myself now, and I have a sense of what is going on with the grain crops.

In a nearby soybean field, the bean plants aren’t even up to my knee yet. I am just over six-feet tall, and these particular bean plants are a good three inches short of my knees.

According to the people I have spoken to, the ground was so wet in the spring that the farmers couldn’t plant until almost a month later than they usually would. The combination of an abundance of snowfall and accumulation over the course of the past winter, as well as a very wet spring, slowed the planting of the crops.

I also went to inspect a cornfield, where I found that the corn is at least a foot and a half above my head. Growing up, I used to hear the phrase “knee high by the fourth of July”. What that meant was that the farmers were going to have a good crop of corn if that saying held true.

Unfortunately, I think that old axiom is outdated.

When I visited here at roughly the same time last year, the corn was much higher than its current levels. The point I am trying to make is that if Indiana is indicative of what is going across the rest of the Midwest, it should be a good year, but not a great year.

Last year we saw corn and soybeans drop sharply in early July, but then they recovered later in the year and into the first part of 2014.

I look for this year to be very different. I don’t see the big drop happening the way it did last year. This year’s selling has been a gradual thing that has taken three months as opposed to a big drop in one week with a little bit of follow up. The sentiment is similar, but is a little more pessimistic this year than it was last year.

The bottom line is this: I didn’t grow up on a farm, but I have been around farms for most of my life. While this year’s crop looks to be a good one, it doesn’t look to be a great one. Meanwhile, the price action and the sentiment would lead you to believe that this year was going to be one of the best ever for crop production. I just don’t see it and I think the selling in grains is way overdone.

We should be able to make profits in this section of the market, but we will just have to be very vigilant and careful when attempting to catch it on the rebound.

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