High Corn Prices Fuel Agribusiness ETFs

by: Tom Lydon

Soft commodities have surged on the worst drought in half a century, and now it is time for farmers and agribusiness exchange traded funds to capitalize on the higher prices.

"Corn farmers are actually set to benefit from a 50% increase in the price of their crop," Nikoleta Panteva writes in an IBISWorld study. "Corn farmers experience strong and inelastic downstream demand from a wide range of food industries, so a jump in prices will not sever ties with buyers."

The Teucrium Corn Fund (NYSEARCA:CORN) rose 29.6% over the past three months.

The USDA estimates that output will dip 15% from 2011, which will not help offset growth from price gains.

Additionally, soybean farmers will also benefit from the drought, as soybeans and corn are interchangeable as livestock feed -- higher corn prices will force a switch to soybeans as a less expensive alternative.

The Teucrium Soybean Fund (NYSEARCA:SOYB) gained 16.8% over the last three months.

Agribusiness ETFs like the Market Vectors Agribusiness ETF (NYSEARCA:MOO) and PowerShares Global Agriculture Portfolio (NASDAQ:PAGG) could also benefit, as they provide equipment to farmers trying to capitalize on the high prices.

However, industries that utilize corn will suffer from the higher prices.

"Corn is also used in a variety of syrups and sweeteners, including high-fructose corn syrup, which is often used in soft drinks snacks, candy and other processed foods," Panteva added. "Consequently, when the price of a commodity jumps, input costs for operators in the Syrup and Flavoring Production industry increase as well."

For instance, PowerShares Dynamic Food & Beverages (NYSEARCA:PBJ) could take a hit, as some of its top holdings are heavy corn syrup users, such as Coca-Cola, PepsiCo and Hershey, to name a few.

Max Chen contributed to this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.