Current US Heat Wave Draws Comparisons to 2012

By Commodity HQ  JUL 23, 2013 11:00 AM

Last summer saw the worst drought of the last 70 years, sending commodity prices soaring, and this year may end up being similar.


Déjà vu all over again. It was about this time last year that much of the US was engulfed in a crushing heat wave that injected a fair amount of volatility into the commodity world; namely in the agriculture markets. With the US dominating the production of a number of big name crops, the recent heat wave has caught the attention of a number investors looking to cash in on the trend.

The Heatwave: Then and Now

For the 12-month span ending July of last year, the US saw the hottest stretch since records have been kept. Higher temperatures combined with a severe lack of rain created the worst drought the country had seen in 70 years. As a result, corn prices surged by about 50% and soybeans jumped by 35%. The weather had gotten so extreme that analysts warned the impact could last well into the opening months of 2013.

This time around is a bit different, but is still a situation that traders need to keep a close eye on. Thus far, massive droughts have not been the issue, but in the midst of the current heat wave, it is a concern for the near future. Recent forecasts showed warmer temperatures and less rainfall that many had hoped for, causing a number of commodities to trade with a fair amount of volatility.

For now, analysts are expecting a strong harvest this year that may even enter into record-breaking territory. If the heat persists or the lack of rain continues, keep a close eye on crop yield expectations as any dips in those figures could send prices into a frenzy. Traders will also want to check the six to 10 day forecasts as prices tend to react to the expected weather ahead rather than the present conditions. Below, we outline securities that investors can use to make a play on the current heat wave.
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Editor's note: This article by Jared Cummans was originally published on Commodity HQ.
No positions in stocks mentioned.