It Looks Like More Food Inflation May Be On The Horizon

Agricultural commodities are pushing higher as the Russia-Ukraine conflict continues to escalate. Recently a major dam collapsed in Southern Ukraine allegedly as a result of a Russian bombing attack which could drive wheat and corn prices even higher. Surrounding the dam are large agricultural fields which could experience significant damage due to massive flooding. In addition, grain silos and other agricultural equipment in the lower banks of the river adjacent to the dam could be adversely impacted if the grain in the silos begins to rot. Ukraine has historically been one of the major wheat and corn exporters in the world so any disruption to these exports could have global food inflation implications. The next few weeks and months of the war are likely to have global inflation implications, especially for agriculture and energy markets.

Heavy Rain and Humidity In China Is Damaging Their Wheat Supply

Millions of tons of unharvested wheat have been damaged by unusually heavy rainfall in central China’s Henan province and neighboring areas. “This region accounts for more than a quarter of China’s overall wheat output according to an estimate by an agricultural analyst,” the South China Morning Post report said.

At least 20 million tons of wheat have been affected, according to Ma Wenfeng, a senior analyst with Beijing Orient Agribusiness Consultancy.

“Such a phenomenon normally occurs once every three or four years, but the scale of the fields affected this year is rare,” Ma said.

What this will do to wheat prices is uncertain but conventional wisdom says that this could hamper supply which in turn may increase prices.  Now may be an ideal time to get some agricultural commodities exposure to hedge against these continued global inflation risks.

One way to gain broad commodities exposure is with iSectors® Inflation Protection Allocation model which has a 37.5% allocation to several broad-based commodity ETFs along with exposure to other inflation hedges such as gold, silver, REITs, Rare Earth Metals and TIPS.

At iSectors, we typically suggest an allocation of 10% to 20% to inflation protection, depending on the clients' objectives. If you would like to learn how you can blend iSectors® Inflation Protection Allocation model or one of our other allocation models to increase your clients' diversification and meet their investment objectives, please let me know.