Profiting From Higher Food Prices and Shortages in 2022March comes in like a lion and goes out like a lamb, and April showers bring May flowers. In the northern hemisphere, farmers are now planting the crops that will feed the world after the fall harvest season. Mother Nature is typically the primary determinate of agricultural products as the weather conditions determine if there will be enough supplies to feed the ever-growing global population. As the world addresses climate change, corn and soybeans requirements for biofuel have put additional upside pressure on prices over the past years. Moreover, rising inflation has increased production costs. The war in Ukraine presents a unique set of concerns for the products that provide nutrition and fuel.
Grains and oilseeds are going into the 2022 US crop year at very high prices
The weather is secondary as the war in Ukraine threatens supplies
Higher prices in the US- The potential for famine in other regions
Food shortages lead to political change
Beans above the teens, corn in the double digits, and wheat explosions could be on the horizon in 2022 and beyond
In 2021, a composite of grain, oilseed, and other leading agricultural products rose 29.71%. In Q1 2022, the composite moved another 18.89% higher. Corn, soybean, and wheat prices are sky-high in early April 2022 as the seeds go into the ground, and the prospects for even higher prices are rising each day.
Grains and oilseeds are going into the 2022 US crop year at very high prices
Nearby May CBOT corn futures settled at $7.4875 on March 31, up 26.21% in Q1.
The chart shows corn’s price was higher on April 8 at the $7.6875 per bushel level. Corn’s all-time high was in 2012 at $8.4375, and the coarse grain reached $8 in March before correcting.
Nearby CBOT soybean futures settled at $16.18250 per bushel on March 31, posting a 21.79% gain in Q1 2022.
Soybean futures were higher at around the $16.89 level on April 8 after reaching a high of $17.65 in February 2022. In 2012, the beans reached a record high of $17.9475 per bushel.
CBOT soft red winter wheat is the most liquid wheat futures contract and a global price benchmark. The CBOT wheat rallied 20.34% in 2021 and was 30.52% higher in Q1 2022.
The CBOT wheat settled at $10.06 per bushel on March 31 and was at over the $10.50 level on April 8. The wheat futures rose to a high of $13.40 in May, eclipsing the 2008 $13.3450 per bushel record peak.
As the seeds go into the ground in the US and other growing regions in the northern hemisphere, prices are at multi-year highs and not far from record levels.
The weather is secondary as the war in Ukraine threatens supplies
The weather typically causes price volatility during the annual planting and growing seasons. However, 2022 is anything but a typical year. Rising inflation has caused input prices to soar, pushing land values, rents, financing costs, energy, labor, equipment, seed, and other expenses higher. Moreover, Russia’s invasion of Ukraine has transformed Europe’s breadbasket into mine and battlefields. Russia and Ukraine export one-third of the world’s annual wheat requirements and substantial amounts of corn, barley, and other agricultural products. The Black Sea ports, a critical logistical hub in the region, is a war zone. Meanwhile, Russia retaliated against sanctions by “temporarily” banning fertilizer exports, sending prices higher, and limiting availabilities. The lack of fertilizers will translate to lower global crop yields.
In April 2022, the weather is secondary to the geopolitical landscape for the commodities that feed the world.
Higher prices in the US- The potential for famine in other regions
In the US, consumers will pay much higher prices for food in the coming months and years. However, as a world-leading agricultural producer, the US food supply is likely to fulfill domestic requirements, barring any catastrophic weather events. Other regions worldwide could face food shortages leading to famine.
In a sign that Russia may cut off agricultural exports, Russian President Vladimir Putin said that the West’s sanctions would make Russia keep a close eye on its food exports to hostile countries. The Russian leader said, “They will inevitably exacerbate food shortages in the poorest regions of the world, spur new waves of migration, and in general drive food prices even higher.”
Even if Russia continues to export to some countries, the production loss caused by the war looks likely to be substantial.
Food shortages lead to political change
When governments cannot feed people, revolutions tend to follow. The French Revolution that cost the last French Queen’s head began as bread riots in Paris. More recently, the 2010 Arab Spring came two years after wheat reached its previous record high. Bread riots in Tunisia and Egypt caused by rising prices and falling availability caused the sweeping political change in North Africa and the Middle East.
Inflation, the war in Ukraine, and sanctions on Russia will have severe ramifications for supplies over the coming years. Feeding people is a government’s primary task, and hungry citizens quickly lose patience with their leaders.
Beans above the teens, corn in the double digits, and wheat explosions could be on the horizon in 2022 and beyond
Soybean futures first traded in the teens in 2008. In 1973, the oilseed futures reached a high of $12.90 per bushel, beginning the chant of “beans in the teens” from those bullish on the oilseed. While it took three and one-half decades for beans to trade in the teens, the next time they move out of the teens could be on the upside at prices above the $20 per bushel level.
Corn has never traded above $8.50 per bushel, but it could head for over $10 in the current environment. CBOT wheat already reached a record high in March 2022, and higher highs could be on the horizon over the coming months and years.
While the weather is secondary for the 2022 crop year, a drought, flood, or other weather events that impact the growing season and weigh on supplies could make matters worse. Anything short of a bumper crop from the US and other growing regions away from Europe’s breadbasket could be disastrous for prices and availabilities.
The bull market that took the grain sector 29.71% higher in 2021 and 18.89% higher in Q1 2022 looks set to continue. The current environment limits the downside while the upside remains explosive. Risk-reward favors the upside in the commodities that feed and increasingly fuel the world.
--
Trading advice given in this communication, if any, is based on information taken from trades and statistical services and other sources that we believe are reliable. The author does not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects the author’s good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice the author provides will result in profitable trades. There is risk of loss in all futures and options trading. Any investment involves substantial risks, including, but not limited to, pricing volatility , inadequate liquidity, and the potential complete loss of principal. This article does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein, or any security in any jurisdiction in which such an offer would be unlawful under the securities laws of such jurisdiction.
