The agricultural commodity market has been an area to watch lately, given worries over the growing global food crisis and rising prices. Global food prices are surging at the fastest pace ever as the war in Ukraine has disrupted crop supplies, piling up more inflationary pain on consumers and worsening a global hunger crisis through markets for staple grains and vegetable oils. Invesco DB Agriculture Fund DBA added 4.1% past month (as of Sep 2, 2022).
The war in Ukraine then sent food prices surging at their fastest pace ever. Russia and Ukraine are major exporters of grains and they together account for more than a quarter of the global trade in wheat, and a fifth in corn. Ukraine is also the biggest exporter of sunflower oil.
Russia and its ally Belarus are also the world's major fertilizer exporters. In addition to sanctions, the spike in energy prices have raised production and transportation costs of fertilizers, raising the possibility of continued surge in food prices.
Many countries have resorted to food protectionism amid rising shortages. Export restrictions are making food prices even more expensive. Some specific soft commodities staged even higher run. Corn, wheat and coffee are among the few agro-based commodities that staged a rally lately.
Dry weather in key producing region of Brazil led to gains in coffee prices. This has hurt the development of coffee buds. Drought and lower crop condition ratings have boosted corn prices. Many private analysts are cutting yield and total production of corn and soybean estimates. The USDA Crop conditions report revealed corn ratings down 3% at 58% good to excellent, marking a larger drop than anticipated, per agriculture.com.
In a nutshell, the world is striving to restock grain reserves hurt by trade disruptions in the Baltic Sea and unfavorable weather conditions, especially drought, in some of the key growing regions. Drought is shrinking crops from the U.S. Farm Belt to China's Yangtze River basin (per Bloomberg), resulting in fears of global hunger and weighing on the outlook for inflation. We do not expect the rally to lose momentum in September too.
Below we highlight a few winning agricultural ETFs of the month of August. These ETFs may continue its winning momentum in September too.
ETFs in Focus
Teucrium Corn Fund CORN – Up 14.2% Past Month
iPath Series B Bloomberg Coffee Subindex Total Return ETN JO – Up 11.8%
ELEMENTS Linked to the ICE BofAML Commodity Index eXtra Grains Total Return GRU – Up 11.4%
iPath Series B Bloomberg Agriculture Subindex Total Return ETN JJA – Up 10.3%
iPath Series B Bloomberg Grains Subindex Total Return ETN JJG – Up 9.9%
Teucrium Soybean Fund SOYB – Up 9.1%
Image sourced from Shutterstock
© 2023 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.