Food Prices - The Ultimate Inflationary Fuel
Nutrition supports life and transcends borders and political ideologies, and agricultural products feed the world. Crops grow in regions where the climate, water availability, and soil support and allow them to flourish.
Each year is a new adventure in the agricultural commodities market as farmers plant the seeds in the early spring that become the grains and oilseeds that feed the world after the fall harvests.
At the start of the 2022 crop year in the Northern Hemisphere, critical agricultural commodity prices are near record highs. With inflation rising and a significant war raging in Europe, the potential for even higher prices and scarcity is at the highest level in years.
The spring and early summer are the seasons of uncertainty
- Each year the success of the planting and growing season for agricultural products depends on the weather conditions.
- Mother Nature is the most influential factor as seeds go into the ground as she determines if the weather supports crop growth and a bumper fall harvest.
- Crop prices tend to rise in the spring and summer as the weather uncertainty peaks.
Inflation ignited a bullish fuse in agricultural commodities
- In 2022, the highest inflation in over four decades has pushed production costs higher.
- Land values, labor costs, seed, labor, equipment, energy, and other expenses have soared.
- Farmers face record-high production costs in 2022.
- Crop prices need to keep pace with costs to make farming economical.
The war in Ukraine presents a unique threat
- Ukraine and Russia export one-third of the world’s wheat.
- Ukraine is a significant producer and exporter of corn.
- Oil prices at the $100 per barrel level increase the demand for corn-based ethanol and soybean-based biodiesel.
- Russia imposed a “temporary” export ban on fertilizers, increasing crop production costs and creating scarce supplies for farmers at the start of the 2022 crop year.
- While prices may rise in the US, other areas could experience shortages leading to famine and political upheaval.
The ABCD agricultural companies will profit from rising crop prices
- The leading integrated agricultural companies worldwide are the ABCD group.
- Archer Daniels Midland (ADM) is a supermarket to the world.
- Bunge Limited (BG) is an agricultural leader with vast interests in the US and Brazil, two leading crop-producing countries.
- Cargill is a privately held agricultural leader.
- Louis Dreyfus is another privately held agricultural company.
Archer Daniels Midland (ADM) and Bunge (BG) are the publicly traded agricultural giants
- ADM shares have soared in 2022, moving from $67.59 on December 31, 2022, to $91.17 per share on April 1, a 34.9% gain.
- BG shares have appreciated from $93.36 on December 31, 2021 to $ 112.78 on April 1, 2022, a 20.8% increase.
- ADM hit an all-time high of $93.50 on March 25, 2022.
- BG rose to a high of $117.45 on March 25, the highest price since June 2008. The all-time high was at $135.00 in January 2008.
- Rising food prices could be bullish for ADM, BG, and other ABCD companies.
- Rising food prices push inflation higher and often lead to geopolitical instability.
Thanks for reading, and stay tuned for the next edition of the Tradier Rundown!