In a Sour Market, Agricultural Commodities Are Still Tasty

Agricultural commodities could be one of the last remaining options on the menu for investors reeling from the collapse in global bond and equity markets.

While the war in Ukraine, transport disruptions and rising oil and fertilizer prices were the initial drivers of grain prices, protectionism is emerging as a new threat. With inflation rising in Asia, such measures could exacerbate food price pressures globally, according to Sonal Varma, an analyst at Nomura. In a brutal market for almost every asset class, staples like wheat and corn — and formerly the companies that process and trade them, such as Archer Daniels Midland and Bunge — could become a relatively safe haven, at least as long as the war drags on.

Last week, India banned wheat exports, saying the country’s food security was under threat. Severe heat waves have damaged wheat production across the country. Although India is not a major wheat exporter, it is the world’s second-largest wheat producer and amassed one of the world’s largest stockpiles earlier this year. India’s move follows similar bans in recent weeks: Indonesia halted palm oil exports in April and Serbia and Kazakhstan imposed quotas on grain shipments. Data from Melbourne-based agricultural market analysis firm Thomas Elder Markets shows that Indonesia alone is responsible for around 53 per cent of global palm oil exports. And while the United Nations forecast for end-of-season grain stocks in 2022 increased slightly in May from April, a significant proportion of that is now stuck in places like Ukraine and India.

Prices of wheat, corn, soybeans, rapeseed and palm oil have increased since Russia’s invasion of Ukraine, with wheat and corn prices increasing by about 60% and 30% respectively since the beginning of 2022. Furthermore, Unlike some energy commodities like oil, the need for destruction from high prices is less likely to be an issue — especially in the low- and middle-income countries that account for the majority of global food demand. bridge. Taking the bus instead of driving to save money is one thing. Eat less is a completely different game. Andrew Whitelaw, a grains analyst at Thomas Elder, said he believes farm prices will remain strong for the rest of the year and most likely next.

Before the war, the world depended on an abundant and cheap supply of wheat from Russia and especially Ukraine. These two countries account for 29% of total global wheat exports, according to US Department of Agriculture data. According to data from Thomas Elder, Ukraine alone is responsible for 15% of barley, 50% of sunflower oil and 14% of corn and rapeseed in global trade, based on a five-year average.

With food inflation burning into the pockets of consumers, especially lower-income households, governments are anxiously hoarding what they have. For investors burned by volatile stock and currency markets, agricultural commodities can help fill the gap — minus an unexpected solution to Ukraine’s protracted turmoil. .

While Ukraine suffers from military attacks by Russian forces, analysts are warning that the world’s wheat supply could be seriously threatened. WSJ’s Shelby Holliday explains. Photo: Valentyn Ogirenko / Reuters

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