I remember waking up to the news of the Russian invasion of Ukraine and could not believe all the images I was seeing on TV. First of all, I offer my sincere condolences to those victims of this war. Since then, it has already been a month, and many things have happened. Extreme events such as this usually present us with investment opportunities.
Current State of Inflation
The COVID-pandemic contributed its fair share of the inflation, more so in the developed countries. Lockdowns meant people were travelling less for work and leisure, eating out less, and going to fewer entertainment venues, among other things. At the same time, work from home and fiscal stimulus packages increased the demand for certain goods such as technological goods, cars, and furniture. These changes resulted in overall inflationary pressure on the prices of durable goods and their related supply chain costs. The sudden increase in demand caused this inflation while the supply remained usual.
Just when we are coming out of the lockdowns with the rampant inflationary problems still to deal with, the Russian invasion in Ukraine is now causing supply-driven inflation that is hitting the underdeveloped countries hard. Both Ukraine and Russia represent 30% of all global wheat exports currently unavailable, primarily imported in the Middle East and North Africa.
Since the invasion, concerns about supply disruptions have pushed up wheat prices by over 50%. The prices rose by the maximum possible allowed by the trading market regulations for March's first five trading days. Such a price hike has never happened before in history.
Wheat is one of the most extreme cases of inflation right now, but the rise in transportation fuels also contributed to inflation in other crops.
So in the developed countries, we experienced inflation in durable goods, which made us buckle down and spend money on only the necessities like food. Now the crop prices are going up, and the effects of that will hit our dinner tables soon. In an extraordinary situation like this, spending some of your cash on ETFs that can act as a hedge against inflation would be a good idea. I don't recommend spending all of your cash despite most people considering cash to be trash. Cash will come in handy when the prices come crashing down eventually.
Investing in Agribusiness ETFs
The rise in the prices of underlying crops means companies who produce these would greatly benefit from it. Since the prices have risen only in the past couple of months, the increase in revenue would have to wait until the next harvest season. Some decisive investors have already invested in agribusiness stocks, and the increase in their prices is evidence. I believe it is still not too late to invest in these now, as many of these companies will look to increase their market share in the global market that the recent events have disrupted. Here are some examples of big agribusiness ETFs:
- VanEck Agribusiness ETF
- iShares MSCI Global Agriculture Producers ETF
- First Trust Indxx Global Agriculture ETF
I will continue to follow up with the inflation in crop prices and their effects on agribusiness ETFs. Stay tuned for more updates in the blog posts.