Investing in the major grain categories of wheat, soybeans and corn provides exposure to an alternate asset class with different performance potential than the standard stock and bond investment categories. Investing in grains is a play on long-term population growth and the need for food products around the world. The financial markets offer several ways to invest and profit from rising grain prices.
Determine whether you want to put money into the individual grains through investing in futures contracts or would rather get exposure to all three grains with an exchange-traded fund — ETF. Futures trading requires an account with a registered commodity futures broker and provides leveraged action on the grain values. ETF shares can be purchased through your regular brokerage account.Step 2
Open and fund an account with a commodity futures broker registered with the National Futures Association to trade grain futures. Discuss your trading goals with a broker representative. Commodity brokers typically provide more one-on-one service to help you set up a trading platform and learn how to check prices and place trades.Step 3
Study and understand the effects of leverage when trading futures. A grain futures contract can be traded with a minimum margin deposit of 5 to 10 percent of the contract's value. As a result, the profits or losses from a futures position will be 10 to 20 times the amount of the price change.Step 4
Look up the current share values of the grain ETFs if you prefer to invest through your stock brokerage account. At the time of publication, the two available grain ETFs were the iPath Dow Jones-UBS Grains Subindex Total Return ETF — (symbol JJG) and the ELEMENTS Exchange Traded Notes MLCX Grains Index-Total Return (GRU).Step 5
Select the grains ETF in which you want to invest and place an order through your online brokerage account to buy shares. Monitor your investment values as you would with any stock investment.
- The grain ETFs invest in futures contracts of corn, soybeans and wheat in relatively equal proportions. The ELEMENTS fund also buys futures for soybean oil.
- If your goal is to trade grain futures, starting with the ETF shares is less risky and gives you a chance to study and understand the price swings in the grain markets.
- Both grain futures and the grain ETFs allow short selling. You can sell short to profit from declining prices.
- The leveraged nature of trading commodity futures puts you at risk of losses greater than your initial margin deposit. Futures can be a fast-moving market with large value changes during the day and over extended periods of time.
Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.