'The Next Food Price Surge'

In a new report, Nomura analyst Rob Subbaraman discusses global food prices and why he believes that the next global food price surge is on its way. His report also includes ways that opportunistic traders can profit from rising food prices.

Oil Vs. El Nino

While the recent plunge in commodity prices led by crude oil has generally produced lower prices for soft commodities as well, Subbaraman believes that the weak commodity environment is no match for the current El Nino weather pattern that will be wreaking havoc on global food production. According to the report, some meteorological experts believe that this year’s El Nino will be the strongest ever recorded since the phenomenon was first tracked back in 1950.

Combining the likelihood of droughts and flooding from El Nino with the possibility of hoarding and financial speculation that could result from the economic weakness in China creates a scenario that Subbaraman believes could drive global food prices sky high.

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Who Will Be Affected?

Subbaraman explains that high food prices typically are more harmful on the economies of poorer countries, which tend to be food importers. “Such countries may experience a sharp fall in GDP growth, a surge in CPI inflation, worsening fiscal and trade positions, higher interest rates, currency depreciation and widening credit spreads,” he wrote.

How To Play It

Nomura recommends a list of global food stocks that the firm believes will be positively impacted by higher food prices. The list includes agricultural chemical companies Monsanto Company (NYSE: MON) and Potash Corp of Saskatchewan Inc (NYSE: POT), farm machinery companies Deere & Company (NYSE: DE) and AGCO Corporation (NYSE: AGCO) and food retail companies Whole Foods Market, Inc. (NASDAQ: WFM) and Kroger Co (NYSE: KR).