With this Ag-Stock “Basket” You’ll Kick Food-Price Inflation Right in the Teeth
Been to the grocery store lately? Then you know that food prices are surging.
The U.S. Federal Reserve refers to that as “inflation” – a clinical bit of jargon that fails to capture the sticker-shock pain your family feels every time you wheel a shopping cart into the checkout line.
Central bankers also tell us this inflation is “transitory.”
But I’m here to tell you that it’s not.
Food prices have been rising for almost two years; they really accelerated during the pandemic and have never looked back.
And it’s only going to get worse.
Thanks to surging demand both here and overseas, the multi-year “Megadrought” in the southwestern United States, an ongoing “overhang” from the COVID-19 pandemic, and foreign-trade gamesmanship from Beijing, agricultural commodities are soaring in price.
Just look at the “Big Three” of ag commodities – wheat, corn, and soybeans.
Wheat, the key ingredient in flour, bread, cookies, pastries, and pasta was already at a seven-year high – and just logged its biggest weekly climb in almost two years on expectations of strong global demand and lower production from Russia, the world’s No. 1 exporter. Cold temperatures have hit winter wheat crops in the Southern Plains and Central states of America. And, according to FranceAgriMer’s cereal crop report, France’s wheat and barley crops have deteriorated, too.
Corn, which goes into cereals, snack foods, soft drinks, and other sweet foods, is already at its highest level since 2013 – thanks to lousy weather that’s delayed planting in such crucial growing regions like the United States and Brazil. The U.S. Department of Agriculture said that cold weather could slow the germination of newly seeded corn. U.S. corn crop was 8% planted as of Apr 18. The crops from the 2020 harvest have also been deteriorating.
Finally, we have soybeans, used in soymilk, tofu, and as protein for cattle – meaning they influence meat prices. Soybeans are brushing up against eight-year highs. Tightening global grain and vegetable oil supplies just ignited the biggest weekly rise in soybean futures since May 2019. Meanwhile, the Chinese are trying to import more soybeans to meet strong demand from that country’s livestock sector. And shipments from Brazil – the world’s top exporter – dropped to their lowest level since January 2017. The Farm Bureau says cool, dry weather in the Midwest could hurt soybean crops, although U.S. farmers plan to plant 87.6 million acres of soybeans this year – the most since 2018 – to capitalize on that demand and the higher prices the supply squeeze will create.
So, yes that basket of groceries you’re bringing home to your family will continue to take bigger and bigger bites out of your household budget.
Here’s why I’m sharing this all with you today.
I’m decoding the ag-commodity surge, explaining the inflationary spike still to come, and identifying some of the companies that stand to be the biggest beneficiaries. You can buy these shares, ride along as they profit – and make enough to transform food-price inflation into a non-factor in your household.
And I mean starting today. Starting right now…
Surging Prices, Hidden Inflation
You know inflation is off to the races when the Consumer Price Index (NYSEArca:CPI) starts rising. And sure enough, the CPI for March was up 0.6% from the month before.
But the “real” number is much bigger than it appears.
On a month-over-month basis, 0.6% isn’t a big jump. But if you run out the string, you’re talking about a year-over-year leap of 2.6%.
That was the biggest annual gain since August 2018, and represented a steep acceleration from the 1.7% annual gain measured in February.
But here’s an even better way to look at this. If you take that 0.6% one-month jump, and multiply it by 12 to “annualize” it, you’re talking about an inflation rate of 7.2%.
And it’s probably worse than that.
I’ve been watching the financial markets for a long, long time. So I happen to know that your friendly neighborhood government data managers have changed the way they calculate inflation dozens of times since the early 1980s. John Williams of shadowstats.com sees it the same way, noting that “if the rate of inflation was still calculated the way that it was back in 1980, it would be more than 10% right now.”
You read that correctly: 10% — the kind of inflation we haven’t seen since 1980, when the U.S. Federal Funds Rate was 18% because Fed Chairman Paul Volcker was trying to crush rampant rising prices.
Yes, the Weather Outside is Frightful
So why are we seeing rising food inflation? According to The Economist, we’re right now facing a “heady cocktail of sharply rising demand from emerging-market consumers coupled with climatic changes, resulting in what [investing icon] Jim Rogers says is the lowest global inventory of food since 1972. Add to that the demands of a rapidly expanding biofuels industry and suddenly you have a serious squeeze. Investment bank Goldman Sachs says the world is entering a period of ‘sustained inflation in agricultural products.”
Let’s again translate that out of “Wall-Street-speak” and into something regular folks can understand.
Countries like India – and especially China – are seeing huge improvements in their standards of living. And that means their now-affluent middle classes are joining America and other Western economies at the dinner table.
But that jump in demand is coming at the same time we’re seeing a supply squeeze – in part because of weather conditions that are hostile to agriculture.
In parts of the United States, we’re talking about the “Megadrought.”
The epicenter of the drought is the Four Corners region in the Southwest. But the drought is so extensive that it’s hitting farmers as far away as North Dakota – where the first months of 2021 were that state’s driest seen in 126 years.
Things are equally “dry and dusty” in the Upper Midwest, the Northern Plains states, and the Prairie provinces of Canada.
Down in Texas, a farmer named Blake Fennell says that his operation “has not had any significant rain in almost two years.”
The forecast also calls for dry weather and small harvests in Brazil, another critical global ag market.
Speaking a week ago at the 2021 Iowa Farm Bureau Federation Economic Summit webinar series, Claudio Serafini, a Brazilian agronomist and agricultural guide, warned that the lack of rainfall early in his country’s growing season could hold down soybean harvests – as well as corn, which is planted right after the former crop.
So now that you understand the threat of food inflation, let me show you how we’re going to neutralize it.
Shopping for the Perfect Food Stocks
The old maxim that tells us “if you can’t beat ’em, join ’em” is the operative strategy here.
We’re going to construct a basket of exchange-traded commodities and “ag” (agriculture) stock winners whose share prices are going to inflate as investors realize food inflation is getting serious.
When they finally do come to that realization, they’ll stampede to buy the goodies in that basket – which is great for us, since you’ll already own them.
Three ETFs offer pure-play commodity exposure in corn, wheat, and soybeans.
Teucrium Trading has three eponymous, pure-play ETFs that have commodity exposure to corn, wheat, and soybeans.
There are the Teucrium Corn Fund (NYSE:CORN), the Teucrium Wheat Fund (NYSE:WEAT), and the Teucrium Soybean Fund (NYSE:SOYB) track futures contracts traded at the Chicago Board of Trade on each of those actively-traded commodities.
These three ETF’s should be in your “ag basket.”
If your ag basket is 10% of your portfolio, I’d put 1% of that in CORN, 1% in Wheat, and 1% in SOYB. And I’d use 15% trailing stops under each. And I’d make that 10% of your portfolio after each one rises to 20%.
Go get your basket filled.
Until next time,