In a sort of sneaky fashion, agricultural futures have plummeted to levels not seen in some time. Corn is about $3.50 a bushel. Soybeans are down to $10 per bushel. This is a far cry from a few years ago when we had $6 corn and "beans in the teens."
It is even a farther cry since the middle of the last decade when pension funds were buying commodity index swaps and you had guys such as Mike Masters testifying in front of Congress about speculation and hoarding. The index swaps eventually went out of style, but prices stayed high for a long time.
High grains prices generally means rich farmers. As I talk to people around the country, it is generally recognized that farmers are often the richest people in town. This was not always the case. Back in the 1980s, when I was growing up, farmers had a rough go of it. In fact, in the medium-term history of agriculture prices, things have only been interesting since 2004. If you go back before that, you are looking at long periods of $2 corn.
So, what if we get back to those levels? Some very smart agricultural analysts I know think it will happen, and they have been telling me that for years. They are probably going to turn out to be right, albeit, belatedly. But if you think about it, if you are bearish on oil because of shale production, you can't be bullish on agricultural stocks unless you think there is going to be a prolonged period of drought. There hasn't been. Some of the agricultural guys I follow on Twitter were tweeting pictures of how high the plants were early in the season.
So the question is: What if the 10-year bull market in grains turns into a 10-year bear market in grains? I ask the question because agricultural stocks are currently in meltdown mode and we haven't heard a peep about this in the press. We probably won't hear anything about it until things get really bad, and the farmers really are in trouble.
But this is bigger than the farmers not walking around with a jingle in their pocket. What do farmers do when they have money? They spend it on agricultural equipment!
Enter John Deere (DE). Deere has been a direct beneficiary of high grains prices over the last 10 years. Its long-term chart is a sight to behold. Although the stock has been trading in a range over the last four years, the chart is starting to look kind of limp.
Deere is the best proxy for the price of agricultural commodities in the stock market. Of course, there are exchange-traded products (ETPs) where you can bet on or against the price of corn, etc., but I'm not sure that's where the money is, and the ETPs are often more complicated than they seem.
Of course, the prices for hogs and cattle are in the news right now, because prices are high. Declining prices rarely make the news. But they will, when the farmers start to squeal.
I'm bearish on Deere. But it's a really boring trade, and it will take a lot of patience.