With the world's population continuing to rise, untold pressures are being put on our natural resources. Perhaps nowhere is that greater than in the agriculture sector. As the world approaches the 7 billion citizen mark, the need for more food is quickly becoming a paramount issue. Overall, food production will remain one of the biggest megatrends for investors going forward. To that end, funds like the iShares MSCI Global Agriculture Producers ETF (ARCA:VEGI) have become popular destinations with investors.

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With this long-term uptrend in demand firmly in place, various supply shocks and issues can wreck havoc on agricultural prices. For investors, these problems can produce opportunities. One of these opportunities currently exists in the grain complex and the sector looks to repeat last summer's surge.

Hot Dry Weather
After falling down right along with the rest of the commodities complex, the grains could be setting themselves up for a nice surge throughout summer. The culprit: hot and dry weather from a few key producing regions.

First, severe droughts across the Russian plains have analysts in the nation predicting smaller grain outputs for the new marketing year. According to agricultural consultancy SovEcon, Russia's maximum production of cereals could hit 85 million metric tons. That's down from the group's previous estimate of around 90 million tons of grain and less than the 94 million tons produced last year. The lack of rain was felt the most severely in Krasnodar. About 15% of winter crops in Russia's biggest wheat exporting region were lost. That's sharply up from the multi-year average of 1 to 2%. Overall, these drought conditions continue to persist across the nation's south and many key producing regions have started harvesting grains two weeks earlier than normal, in order to collect seeds before they spoil. Likewise, many regions have also experienced smaller kernels and lighter weighted harvests - all conditions that reduce overall output.

Like Russia, hot dry weather across the United State's Midwest crop belt is threatening prospects for a strong harvest. The U.S. Department of Agriculture recently reported a larger-than-expected decline in weekly U.S. corn and soybean condition ratings. The USDA estimates that the U.S. corn yield for 2012 will stand at 166 bushels per acre. However, given the recent drop in ratings, analysts are predicting that number to be closer to 160 bushels per acre.

SEE: Harvesting Crop Production Reports

Betting on the Grains Continued Rebound
These smaller supplies will ultimately help drive prices upwards as the rest of the summer goes on. Already, global grain inventories remain strained amid rising demand. That means now is good time to strike on the agriculture subsector. Here's how to do it.

With corn imports by China projected to rise to 5 million tons, up from 3.5 million in 2012, investors may want to turn their attentions directly to that commodity. Rising industrial and animal-feed demand in the nation will help spur prices upward and the Teucrium Corn (ARCA:CORN) offers a great way to play that trend. The fund follows the weighted average of three corn futures contracts that are traded on the CBOT. Likewise, the beaten down iPath DJ-UBS Livestock ETN (ARCA:COW) could be an interesting side play on rising corn prices. The fund's weightings toward cattle and lean hog prices also go up as feeding livestock becomes more expensive.

For investors wanting to bet directly on the rise of grain prices due to increased demand, the iPath DJ-UBS Grains ETN (ARCA:JJG) fits the bill. The ETN follows wheat, soybean and corn futures contracts. Following a similar index, the ELEMENTS MLCX Grains Index ETN (ARCA:GRU) can be used, as well.

Finally, with so much of the grain's "issues" stemming from drought, both GMO seed producers Monsanto (NYSE:MON) and Syngenta (NYSE:SYT) could be good buys, as the world begins using their products to prevent problems associated with these conditions.

The Bottom Line
With weather and supply problems facing the grains complex once again, this summer could see a repeat of higher prices. For investors, that could mean a strategic bet on the agricultural sub-sector. The previous ideas, along with the broad-based PowerShares DB Agriculture (ARCA:DBA), make ideal selections to play the hot dry weather.

At the time of writing, Aaron Levitt did not own shares in any of the companies mentioned in this article.

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