The first quarter of 2011 ended yesterday and the U.S. Department of Agriculture’s grains report was very bullish. It is clear that grains are in a multi-year, bull-market mega cycle.
With higher prices comes higher volatility. Any problems with new planting could cause prices for corn, wheat and soybeans to go parabolic! And these price changes create opportunities for investors to profit.
One opportunity in particular recently handed investors 162% profit in just four days…
Before I give you the details of how investors grabbed 162% profit in just four days, let me explain why the trend of higher grain prices is here to stay:
1. Increasing Demand for Biofuels Such as Ethanol is Growing – The global thirst for oil increases each day with the emerging middle class in Asia. Oil is a finite commodity produced in some of the most unstable regions around the globe. It is estimated that, this year, 40% of U.S. corn production will be used for ethanol (an alternative to oil) production. This will put more upward pressure on grain prices.
2. Less Food and More Demand for Food Means Higher Prices for Grains Over the Long Term – Asia’s emerging middle class is eating more and more grains and protein. Animal consumption is on the rise around the world. Around 70% of the cost of raising animals is feeding them. Cows, chickens and pigs eat lots of corn. Increases in protein consumption are causing dramatic increases in demand for grains. This trend will continue.
3. Crop Substitution Will Play a Role in Higher Prices – In 2008 grain prices made new highs and cotton prices languished at prices below 40 cents per pound. Some farmers strategically decided to plant grains and forsake cotton in the coming crop year. Since then cotton prices have soared by 500%. Grain prices have stabilized at higher levels. Farmers today have many more choices when it comes to growing profitable crops. It seems that whatever they grow, they are making great returns.
All of these trends combined are affecting grains prices.
But this market is notoriously volatile. There are big moves on a monthly, weekly and even daily basis.
Feeding the world is becoming harder and harder each year, even under normal growing conditions. Add droughts, floods and other natural or man-made disasters to the mix, and you’re left with greater shortages on the supply side, which can result in severe price spikes.
This volatility creates incredible opportunities for traders to profit – sometimes in very short time spans.
Droughts in Russia (the world’s third-largest wheat exporter), for instance, might prompt lower forecasts for the world wheat harvest. This could spark a surge in wheat futures in the short term.
Savvy traders who know how the wheat market operates could capture that upside via a call option and pocket a handsome profit. It’s a strategy that works.
If that doesn’t convince you…
How About Locking in 162% Profits in Four Days?
A couple weeks ago, Japan’s earthquake-tsunami-nuclear crisis triggered a broad sell-off across all commodities. The market saw huge selling on March 14th as investors pulled out of risk assets.
Corn was especially hard hit. But the world wasn’t about to reduce food consumption because of Japan’s crisis… nor would Japan (the world’s #1 corn importer) suddenly and sharply reduce its consumption of corn.
There is no doubt that some food stockpiles of corn, a perishable commodity, were destroyed in the wake of Japan’s trifecta of disasters. Realistically, all this meant was the country would need additional shipments of corn in the very near term.
Cleary, the underlying trends fueling the grain market are solid. As a result, the profit-taking left corn in an oversold position and near support. I expected this commodity to bounce back sharply, so I immediately recommended the April $7.00 corn call option on my blog to capture the upside.
It was the right call. Corn did exactly as I expected – the market figured out that the situation in Japan would increase short-term demand in the corn market, which already has tight supply/demand. As a result, the April $7.00 corn call option surged an incredible 162.5%… in just four days.[]
The Bull Market in Grains Has Only Just Begun
There are countless opportunities in the grain sector similar to the one I just mentioned that could have incredible payoffs.
In general, commodities are far more volatile than equities, foreign exchange or fixed income products, and the moves up can be dramatic. The moves down can be huge as well. But there are great opportunities in the options market to profit on both the upside and the downside of these swings.
The fact is that many savvy investors trading commodities options are making fortunes. So can you. In the coming weeks and months, I’ll tell you more about how we can structure trades in such a way that not only limits our losses, but allows for potential profits of 100%… 200%… 500%… 1,000% or more in relatively short time periods!
Happy Trade Hunting!
Blog: Commodity Options Outlook
P.S. Right up there with grains, as the investment place you want to be for great profits, is another income-gushing opportunity that has nothing to do with traditional stocks or bonds. And it could put an extra $917 to $1,834 in your pocket ever month. All you need to do is activate it today.[]
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