3 Stocks To Buy Amid The Surge In Corn Prices

We are seeing remarkable strength across the commodity complex. Many commodities are hitting fresh all-time highs like copper, iron ore, and lumber, while others, including agricultural commodities, are making multi year highs. This includes corn, which just hit a seven-year high earlier this week, reaching $6.50 per bushel.

(source: TradingView)

In recent days, corn prices have backed off about 6% as markets digest these gains amid a risk-off environment. However, on a longer-term basis, the fundamentals remain strong, due to increased demand and supply constraints. As a result, investors should consider buying stocks that will profit from the surge in corn prices such as Archer Daniels Midland (ADM), Mosaic (MOS), and Bunge Ltd. (BG).

Supply and Demand Dynamics

The supply and demand picture for corn, like many commodities, is shaped by two factors: its bear market from 2013 to 2020 and the coronavirus.

Bear Market

(source: TradingView)

This 16 year chart of corn prices shows corn’s steep decline from 2013 to 2015 and then 5 years of sideways trading at lower prices.

This period of low prices led to bleak conditions for farmers, with many bankruptcies and forced farm sales. It also led many to prioritize cost-cutting and caution. This behavior has been ingrained as intentions for plantings this year show only a 1% increase despite much higher prices.

This probably means that prices need to go higher before supply increases. Contrast this to previous peaks in corn prices when production on a year over year level would be 7 to 10% higher.

Coronavirus

Another major factor has been the coronavirus and its subsequent impacts on the supply and demand side.

Supply has been negatively impacted across all areas including food production. For example, it became tougher for workers to travel to farms for work. Companies also became intensely focused on cutting costs and preserving cash as they assumed that demand would drop.

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Jaimini Desai is Chief Growth Strategist for StockNews.com. See Jaimini Desai’s Favorite Growth Stocks

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