The Agriculture Investment of the Year By Andy Hecht, Senior Commodity Editor Dear Sovereign Investor, As a commodities trader in London in 1989, I learned firsthand that weather can be expensive. I was trading nickel on this occasion, and I decided that the price should go higher. So I bought a lot of it.
That summer, I bought a good amount of nickel from the Russians, who promised to deliver the commodity to me in the future. The price started to rise in November and I sold futures contracts to lock in a very healthy profit.
Unfortunately, I counted my chickens before they'd hatched.
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I hadn't considered one crucial fact – the weather. The Russians were obligated to deliver their nickel to me in December, at which time I had to deliver it to the London Metal Exchange. It all made sense and it was a very clean trade.
Well, almost … The price of nickel started to rise because Russians could not deliver the metal to anyone they had sold to because the port in Siberia was frozen solid. Russian nickel was going nowhere fast, until ships could move through frozen waters.
I had to run and cover my short position on the exchange and – Poof! – my profit on that great trade transformed into a magnificent loss! Mother Nature cost me a lot of money in the winter of 1989. Weather Plays a Key Role in Price I learned the hard way that Mother Nature can wreak havoc on the price of commodities. With agricultural commodities, too much or too little rain can wipe out crops. A hurricane can destroy natural gas infrastructure or cause an oil spill. A monsoon can slaughter sugar cane fields.
It was the weather this past winter that has kept the price of grains high. Winter in the U.S. is summer in South America, where it has been very dry over the past few months – so dry, the production of corn, soybeans and wheat have been affected in Argentina and southern Brazil. The dry months have caused crop yields to decrease and grain prices to stay high.
But weak yields in South America and high grain prices have meant that U.S. farmers have planted a lot of grains this crop year. Farmers are allocating 226.9 million acres to the production of corn, wheat and soybeans in 2012.
This is the largest planting in the U.S. since 1984 and the largest corn planting since 1944, when the U.S. had to grow enough corn to help feed war-torn Europe. A bumper crop should keep a lid on grain prices – but not so fast…
It turns out that to keep a lid on grain prices Mother Nature will to have to cooperate with the farmers. The weather in U.S. could shift, and might yet cause the price of grains to explode later this year. You see, when planting crops, a farmer needs just the right amount of moisture at just the right time, and that may not be in the cards.
The latest report by the U.S. Department of Commerce on the potential for drought in the nation's crop-growing regions does not paint a rosy picture: 
View larger image
The map shows the U.S. DoC is forecasting a drought that will "persist or intensify" from now until late April, the heart of the planting season.
At the same time, there are many forces pulling at grain prices this year. Demand from Asia continues to be buoyant, and a weak South American crop will lower contributions to global stockpiles. In the grain markets, it all comes down to good old Mother Nature. Prolonged drought conditions will result in soaring grain prices. A bumper crop will keep a lid on the prices of corn, wheat and soybeans. It is a coin toss today but one thing is for certain, the grain markets will move as the weather unfolds over the coming weeks and months. The Bottom Line… Grain prices will certainly move between now and summer. Which way? Only Mother Nature knows for sure.
Investors can get on board the grain markets by buying both puts and calls in the corn, wheat or soybean markets via the Chicago Board of Trade. When you buy options all you can lose is the premium that you pay. And you stand to make much more.
Spending a little now could yield a bumper profit later this year!
Happy trade hunting... 
Andy Hecht
P.S. My colleague Jeff Opdyke has some amazing plays on emerging grain processing companies that are exporting processed U.S. grains all over the world. These plays, available in Jeff's Global Growth Strategist, are opportunities to get in on these companies before they explode onto the global scene. I strongly recommend you sign up for this service. For access to Jeff's exclusive research, click here...
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