This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Speculating on Drought

NEW YORK ( TheStreet) -- Investors are ghoulish.

We constantly speculate on the misfortune of others. When people are dying in Libya or Bahrain, we speculate on the price of oil. When workers are laid off in China we speculate on toys and iPods. When they riot in Greece we speculate on the euro.

Well, now our people are suffering. A historic drought has hit Midwestern farmers hard, as the Des Moines Register reports.

This is a global phenomenon that's pushing up prices in India, as Reuters reports, and causing violent strikes in Indonesia, according to Bernama.

Traders are expecting another reduction in crop estimates this week (see this Reuters story) -- maybe not as bad as in past weeks, but bad enough. And if you're expecting supply help from Russia, don't. The news, as the Examiner notes, is just as bad in their grain belts as in ours.

Care to speculate? All this bad news could do wonders for your portfolio.

The game is already on. Fertilizer prices are rising, as are stocks in fertilizer companies like Potash (POT - Get Report) and Agrium (AGU - Get Report). The two commodities are closely linked, according to the Toronto Globe & Mail.

On the other hand, companies in the business of animal protein are sells, like Smithfield Foods (SFD) and Hormel (HRL). You might expect less selling pressure on Tyson Foods (TSN - Get Report), because chicken takes less grain to produce than pork or beef. But no luck, Tyson bought pork producer IBP a decade ago.

Here are two other ways to play this:

Buy McDonald's (MCD - Get Report). The prices paid by McDonald's will rise significantly, but so will the prices consumers pay.

As food prices rise, Americans traditionally trade down. Instead of steak, we go for hamburger. When the impact of currency fluctuations are taken out, the company's most recent "earnings miss" actually turns out to be in line with expectations at $1.39/share, as Business Insider notes.

McDonald's has a steady profit margin of 20%, a steady operating margin of nearer to 30%. The balance sheet shows as much cash as a typical quarter shows gross profit, so it can handle the shocks that a global company takes.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
ADM $43.62 0.65%
AGU $100.52 0.47%
MCD $96.04 2.75%
POT $25.54 0.47%
TSN $42.00 1.45%

Markets

Chart of I:DJI
DOW 16,351.38 +293.03 1.82%
S&P 500 1,948.86 +35.01 1.83%
NASDAQ 4,749.9790 +113.8740 2.46%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs