Record heat, dry skies, and acres of drought-stricken corn are stressing farmers and cereal makers, but commodities and natural resource investors are cool and composed. Weather has caused a ‘supply shock’ that observers say only reinforces a longer-term investing theme in the scarcity of food and water.

A hungry and thirsty world is growing, and “you can’t triple a population in a lifetime without consequences,” said Jeremy Grantham, a closely followed value investor and co-founder of asset management firm GMO LLC., in a speech at the Morningstar Investor Conference in June.

The situation is equal parts opportunity and clock-ticking pressure to devise new ways to use and produce finite resources and their alternatives, and to grow food on dwindling arable land. Agriculture demand will continue to spur innovative irrigation techniques and to address the need for fresh drinking water in developing countries. And therein lies another potential investment — water solutions.

For now, the focus is on supply. June was the fourth-hottest month in the US since 1880, according to the National Oceanic and Atmospheric Association (NOAA) and July has been toasty too. The heat and drought prompted officials to cut harvest expectations.

USDA’s 11 July report featured a 12% drop in the outlook for domestic corn output, crossing out predictions for a record harvest. The US soybean crop, which pollinates later than corn, is on track to be the smallest in four years. Global wheat production estimates are down 1% from a June prediction.

Source: MarketWatch