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Traders and investors are bracing for a spike in food prices - we explore the three agricultural elements to watch
Jessica Amir
Market Strategist
Summary: WATCH our three-minute video. Wheat prices are rising in anticipation of some traders and investors expecting higher food prices, with Russia exiting the Ukraine gain deal and threatening to cut off Ukraine’s wheat supply from the world. We explore the three elements to watch, from commodities, stocks to ETFs. Including the US' biggest wheat producer, General Mills, Australia's biggest grain seller, GrainCorp, as well as why fertilizer stocks and poultry companies including Tyson Foods perhaps could be of interest.
Wheat prices (ZWZ2) rose 5.7% in anticipation of traders expecting food prices to pick up, after Russia exited the Ukraine gain deal and threatened to cut off Ukraine’s wheat supply from the world.
What do you need to know? Typically, the globe relies on the Black Sea region for a quarter of annual wheat and barley exports, a fifth of global corn and the bulk of its sunflower oil. So, Russia’s termination of the Black Sea deal means farmers could face a possible lack of storage space with wheat and corn nowhere to go, plus fertilizers, which farmers rely on to grow crops could be cut off, meaning the fertilizer market will also likely once again focus on supply concerns. Here are the three agricultural elements to perhaps watching;
Firstly - We will be watching Wheat and corn prices, as well as watching agricultural companies including General Mill (GIS), GrainCorp (GNC), Elders (ELD), as well as Fertilizers companies including CF industries (CF), Archer Daniels (AMD), who on sell such commodities and may be expected to sell goods at premium given supply could perhaps be cut short.
Secondly - We will also be watching ETFs like – Invesco DB Agricultural Fund (DBA), iShares MSCI Global Producers ETF (VEGI) and Betashares Global Agricultural Companies ETF (FOOD).
Thirdly - we will also be watching the flow on effects of the rising cost of wheat. It not only makes bread more expensive, but also the cost of chicken will likely rise, given Wheat is the biggest cost growing a chicken (75% of its costs). So if wheat prices continue to rise, farmers and sellers will likely be forced to hike their prices. So, it could be worth watching companies like Tyson Foods (TSN) who is one of the largest processors and sellers of chicken, mutton and beef in the US. In Australia there is Inghams (ING), who focused on producing and selling of poultry. Both Tyson Foods and Inghams shares are 8% up off their October low
Note, this is a developing story. We will cover the latest developments here. Or please follow our head of commodity strategy, Ole Hansen.
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