Rising meals costs are ringing alarm bells for households everywhere in the world. UK meals banks say they’ve by no means been busier. Supermarkets in Italy have reported panic buying. And in Iraq there have been bread value protests.

Meals prices have been growing even earlier than the Ukraine warfare, pushed by greater vitality costs, transport bottlenecks and, in some international locations, farm labour shortages. Now Russia’s invasion has triggered additional rises and issues about extended disruption in agriculture-rich Ukraine.

Does this imply that it’s a good time to spend money on farm commodities? Particularly as fairness valuations stay excessive, regardless of the turmoil attributable to the warfare, and rising inflation is placing stress on bonds?

It’s true that commodities have proved an honest funding at occasions of excessive inflation up to now. However you must select rigorously as these could be unstable markets the place costs can fall as quick as they rise.

It’s no shock that wheat prices are up greater than 40 per cent for the reason that begin of the 12 months, when Russia and Ukraine collectively provide some 30 per cent of world exports.

Provide fears have unfold throughout agricultural markets, with costs for corn, soyabeans and beef all effectively up this 12 months.

The issues are much more acute in fertilisers, a key enter, since Russia and its ally Belarus provide absolutely 40 per cent of world exports. CRU, a analysis firm, calculates that costs are up by about 30 per cent, which can not sound too critical within the circumstances, till you think about they’ve risen threefold since early 2020.

The Worldwide Meals Coverage Analysis Institute says: “The present battle in Ukraine is prone to generate a right away impression on world wheat market stability and, by disrupting pure gasoline and fertiliser markets, have detrimental impacts for a lot of meals producers.”

Shopping for wheat wholesale — as you would possibly gold — is clearly not sensible for the typical personal investor. However the futures markets are very effectively developed and there are tons of of change traded funds (ETFs) each for single crops, akin to wheat, and for diversified baskets of agricultural commodities. BlackRock, the funding home which runs a steady of commodities funds, says that whereas “commodity buying and selling can carry threat” it may well supply “diversification and the potential for upside efficiency”.

Nonetheless, earlier than you make the leap, have a look at some commodity charts to see how wild the worth swings could be. How snug would you be on such a monetary rollercoaster?

For instance, wheat gained 92 per cent within the 5 years between 2017 and 2021. But it surely dropped yearly between 2013 and 2016, with a cumulative lack of 46 per cent. Over the last decade to the top of 2021, you’d have made round 15 per cent — not a lot of a reward for a stomach-churning trip.

There’s additionally an moral query to contemplate. All through historical past, grain speculators have had a decidedly unfavourable popularity. Fairly unfairly, say skilled merchants, who argue that monetary buyers give markets the liquidity wanted to transmit value indicators rapidly. Sure, costs would possibly spike if buyers pile in, however the upswing offers farmers a much bigger incentive to plant extra and relieve any shortages. So on the finish of the day, grains are cheaper and so is bread.

After the final nice grain value surge, in 2007-8, a report from the UN’s Food and Agriculture Organization found: “Obtainable empirical proof doesn’t help claims that non-commercial merchants have elevated the volatility of grain costs.”

However, it’s possible you’ll wish to hold quiet about your grain shares. Public prejudice runs deep. Properly after the FAO printed its analysis, main charities, headed by Oxfam, efficiently campaigned to drive some banks to shut agricultural commodity funds.

In any case, there are different choices, notably equities. Scores of corporations are energetic in meals manufacturing, beginning with some very well-known names. Nestlé, the biggest by gross sales, is a core ingredient of many a portfolio and fund. Different giants embody PepsiCo and Unilever.

Strong corporations, proper for unsure occasions, I’m positive. However they could not provide the publicity you wish to commodity markets. These teams promote merchandise by which commodity prices are typically solely a fraction of the ultimate costs, margins and earnings. Carlos Mera, head of agricommodities market analysis at Dutch financial institution Rabobank, says: “It’s possible you’ll not see a lot of a change within the value of packaged bread at Waitrose, however within the Center East costs are rising quick.”

Not surprisingly, Nestlé’s shares are barely modified since pre-crisis. They dropped when the preventing started (the company is big in Russia) however then bounced again (the Russia enterprise is a small chunk of the entire).

To get nearer to the sharp finish, you would possibly think about the worldwide grain buying and selling corporations. Chicago-based Archer Daniels Midland, which has investments worldwide, together with in jap Europe, has seen its shares rise 15 per cent for the reason that battle started and 26 per cent for the reason that begin of 2022. Bunge, a rival, has posted related features.

Or how about fertiliser producers? The selection is trickier: some make fertiliser by mining and changing potash from their very own reserves, in order that they have some safety towards rising pure gasoline prices. However others use ammonia — a feedstock based mostly on pure gasoline — and so are uncovered. Nutrien, the Canadian potash large, has seen its inventory leap 37 per cent since Vladimir Putin’s tanks rolled in and 43 per cent since January 1. However shares in Yara, a Norwegian rival with gas-based feedstocks, are flat.

After all, there are quite a few funds and funding trusts targeted on agriculture, which provides you with diversification in addition to publicity, limiting your dangers. For instance, the MSCI World Agriculture Producers ETF has names like Nutrien and Archer Daniels amongst its high three holdings, in addition to US tractor maker Deere.

Clearly, lots depends upon how lengthy the Ukraine warfare lasts. No one is aware of, so nobody can inform whether or not 10 per cent of this 12 months’s Ukrainian harvest might be misplaced or 50 per cent. Planting is because of begin in a couple of weeks.

However excessive costs could persist, given all the opposite forces driving them up, particularly vitality prices. So although the preliminary increase to the market has already made itself felt, there may very well be extra to come back. These are inflationary occasions.

Stefan Wagstyl is editor of FT Cash and FT Wealth. E mail:[email protected]. Twitter:@stefanwagstyl



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