Weekly Brief: Food Prices Are Only Going To Get Harder To Swallow

Weekly Brief: Food Prices Are Only Going To Get Harder To Swallow

almost 2 years ago3 mins

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Everyone’s talking about how pricey the Russian conflict is making energy, but less attention seems to be on just how much we could be forking out for dinner soon.

🕰 Recap

  • Russia launched a full-scale invasion of Ukraine last week, sending shockwaves through global markets
  • The energy market felt those shockwaves, with the price of oil hitting its highest since 2014 this week
  • But it’s not just energy: the prices of everything from metals to crops are also soaring as a result of the conflict

✍️ Connecting The Dots

Russia is one of the biggest oil and natural gas producers in the world. And with the recent conflict threatening supplies of the two key fossil fuels, it’s no surprise that energy prices have been on a tear. That’s set to hit economic growth, as companies and consumers find their spending power squeezed by costlier electricity, transportation, heating, and more. And soon these consumers will be seeing another bill soaring: groceries.

It’s hard to overstate the role that Russia and Ukraine play in the global food trade. After a surge in exports over the last decade, the two countries now account for a massive 12% of all calories traded globally, including more than a quarter of the global trade in wheat and nearly a fifth in corn. Wheat’s a major cereal crop used in foods like bread, while corn is an essential animal feed used to fatten hogs, chicken, and cattle.

Russian and Ukrainian farmers typically produce these grains cheaper than more traditional suppliers like the US and Canada, which has helped keep grain prices low. That’s made the region a “global breadbasket”, supplying affordable grain to a large number of consumers all over the world. But the conflict has already started impacting grain supplies from the region. And these disruptions come at a time when global crop prices have already jumped because of poor weather and supply chain issues. That’s led the price of wheat and corn to surge this week to a 14-year and nine-year high respectively, fueling fears of more global inflation and food poverty to come.

🥡 Takeaways

1. Social unrest could be on the horizon.

Many countries depend on imports from Russia and Ukraine for their food needs. North Africa and the Middle East, for example, import over 50% of their cereal needs and a large share of wheat and barley from Ukraine and Russia. Consider, then, that rising food prices in 2010 were one of the catalysts of the “Arab Spring” uprisings that turned violent in many countries, and you can start to see how the current situation could again lead to social unrest in the region, as well as other parts of the world.

2. There are ways to hedge against higher food bills.

Rising food prices will lead to higher inflation and dent consumer spending, and could ultimately escalate to social unrest. None of these will do your portfolio any favors, so you might want to consider hedging against the risk. One way to do that is to buy an exchange-traded fund that tracks a basket of agricultural commodities, like the Invesco DB Agriculture Fund. Another is to think about buying fertilizer and agricultural equipment stocks like Mosaic and Deere respectively. After all, higher grain prices mean more money for farmers and higher demand for fertilizers and equipment.

🎯 Also On Our Radar

Cryptocurrencies are playing an interesting role in the conflict. According to data company Elliptic, more than $50 million worth of crypto has been donated to Ukraine. The country’s government is even planning to become the first developed country to create and sell its own collection of NFTs to help fund its military. Russian citizens, meanwhile, are reportedly paying $20,000 above the market rate to buy bitcoin in a bid to protect their savings from the country’s economic fallout.

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