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Jim Rogers, Commodities Trader, Profits From Drought-Driven High Corn Prices

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Investor Jim Rogers said that he's making money from the drought and happy to see higher corn prices.
Investor Jim Rogers said that he's making money from the drought and happy to see higher corn prices.

Across the Midwest, one of the worst droughts in decades is ravaging crops and driving the price of corn and other basics to record heights. It’s bad news for consumers, who will pay more at the supermarket as crops whither in the punishing heat.

But famed commodities trader and finance author Jim Rogers is making money.

Since the beginning of June, the index he owns -- the Rogers International Commodities Index for Agriculture, or RICIA, has jumped 18 percent. The index, which tracks the price of crops globally, is up roughly 10 percent for the year.

"I’m ecstatic to see prices going higher because [that] might save the day,” said Rogers by phone Tuesday. “People like you are sitting around saying ‘Oh my God, evil speculators are making money at the expense of [consumers]. ... If you’re worried about evil speculators making money, go to the field and drive the price down.” He added: “Who’s going to produce this food if the prices don’t go higher?”

Agricultural commodities prices are so low that farmers can’t make a good living, Rogers argued. And as this generation of farmers gets older, low prices mean less incentive for others to join the profession. All this is a recipe for a global crop shortage due, in part, to cheap corn, he said.

“America produced 200,000 MBAs last year and fewer than 10,000 agriculture [school] graduates,” said Rogers, echoing a point he’d made to Business Insider earlier in the month. “Are [farmers] going to work for nothing? You better hope prices go higher and people make money. If they don’t, we’re not going to have any food.” Rogers added: “For the first time in recorded history, we don’t have anyone to go plant the crops.”

Asked how the farmer shortage he described relates to the current Midwest drought -- a function of weather, not labor supply -- Rogers responded that if there were more incentive for farmers to produce more, they would be dumping corn onto the U.S. market to make up for the shortfall. "That’s what happened in the past,” he said.

Scott Irwin, professor of agricultural economics at the University of Illinois, said skyrocketing corn prices will hit supermarket goods like milk, meat and eggs in particular, because corn is central in livestock diets. “It will be the equivalent of a regressive tax on consumers,” he said. “Those who spend a greater percentage of their income on these basic goods will hurt the worst.”

Irwin said he agrees that the low price of corn helped contribute to the current drought-induced crisis. “The prices were too low,” said Irwin, and farmers had little incentive to plant more than enough in previous seasons to make up for a possible future drought. But he disputed the idea that low corn prices led to a shortage of farmers. “I don’t know of any agricultural economist in the world who would agree" with Rogers, he said. “We have plenty of farmers.”

Irwin said short term prices are likely to continue to rise. That may mean more tough luck for consumers and, as Rogers pointed out, bad news for commodities traders who bet on normal harvests this season.

But it’s good news for some farmers and for investors like Rogers, who said there’s nothing wrong with what he’s doing.

"Until the prices go high enough and stay high enough long enough, we’re not going to have any farmers," Rogers said. "Where is the food going to come from, unless 'evil speculators' make a lot of money? Unless somebody invests a lot of money in agriculture?"

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