Corn (NYSE:CORN) is the largest U.S. crop by far, bringing in over $66 billion for farmers last year. Farmers in turn spend that money on machinery, fertilizer, seeds, and pesticides, thus supporting many different agribusiness industries (NYSE:MOO). But corn prices dropped over 15% when the Senate voted to end tax breaks for the ethanol industry, despite the fact that the House has yet to vote on whether to do away with a $6 billion subsidy for corn-based ethanol.
If Congress decides to end the tax break, it will be a big hit to the corn-farming industry. But China (NYSE:FXI) just might swoop in and save the day. While the U.S. expected China to import roughly half a million tons of Corn for the entire year, China recently ordered 540,000 tons of corn in just a single week. And that’s no fluke. Inflation in China peaked last month at 6.4%, causing consumer price inflation for many foods (NYSE:RJA), including a Chinese staple pork, which has gone up 57% in price since June. So the Chinese are in need of a lot of feed grain while it’s still cheap, significantly more than the country can produce itself. Now analysts are saying that booming Chinese demand could entirely reshape the U.S. agricultural industry.
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As the Chinese middle class has grown, meat consumption has grown as well. Last year the country needed 20% more corn to feed hogs than it did the year before, and that trend continues. Furthermore, demand for other food staples in China, including soybean oil, is also growing. Nearly one quarter of the U.S.’s second-largest crop, soybeans, is exported to China, and as the demand grows overseas, so will prices.
So how do investors cash in on this boom? Besides trading in the commodities (NYSE:RJI) themselves, you can also take a look at industry-related companies like Archer Daniels Midland (NYSE:ADM), Deere (NYSE:DE), Caterpillar (NYSE:CAT), Potash of Saskatchewan (NYSE:POT), and The Mosaic Company (NYSE:MOS), all providers of equipment, fertilizers, and other services involved in the production, processing, or transporting of agricultural commodities.