Commodity prices, including agricultural commodities, have traded through their peaks because of the Russia-Ukraine conflict’s impact on supply. The price of wheat rose by nearly 70% since mid-February1, following concerns about disruptions of exports (grain and fertilizers) from Russia and Ukraine, and some countries such as Hungary, halting grain exports for now.
Commodity Prices Soar
Commodity Prices Soar
Source: Bloomberg, as of 3/7/2022.
Russia is the top three global supplier of energy, base metals, precious metals, bulk metals, fertilizers and soft commodities. Specifically for agriculture, Russia is the top second and third supplier for barley and wheat, respectively. Supply and demand imbalances were already significant prior to the invasion. Disruptions are expected to add significantly to the inflation pressures globally.
The latest figures show that combined, both Ukraine and Russia account for about 29% of global wheat exports.2 With Ukrainian ports closed and operators reluctant to trade Russian wheat in the face of sanctions, buyers are trying to find alternative suppliers. Given both countries’ importance to export markets, the conflict will affect agriculture and food supplies across the globe.
Top 5 Countries in Global Production (2020-2021 data, descending order)
Top 5 Countries in Global Production
Source: Goldman Sachs. Data as of December 2021.
Long-term Factors Cultivating Growth in Agribusiness
We believe long-term prospects for agribusiness are also promising. One of the compelling trends underpinning the outlook is global population growth, which may push up demand for agricultural products. Population is expected to grow from 7.8 billion to nearly 10 billion by 2050. Food production must increase by 70% by 2035 to feed a growing population and an expanding global middle class.3
Climate change is another factor. Around the world, weather patterns are the biggest risk to global harvests and can drive food prices up.
There is also a need for efficient agricultural solutions to address a subsequent shortage of arable land or other food disruptions. And technology is providing a glimpse of the future of the agriculture industry. Vertical farming has generated much interest, as the pandemic disrupted supply chains and labour shortages fuel fears over global food scarcity. Though still nascent and seen as a niche area, proponents believe that technology may help increase food production and expand agricultural operations.
Accessing Agribusiness Growth
With agricultural commodities prices trending higher, we believe the companies that support production may benefit, given their sensitivity to prices. In commodities, rising prices lead to increased production, pushing the profits and share prices of the related companies higher. Agricultural commodities and companies in the sector present exciting growth areas in the coming years, in our view.
The VanEck Agribusiness ETF (MOO) offers investors diversified agriculture exposure, providing access to companies that operate in the agriculture sector, including farm equipment, seed and fertilizer, and animal health. We believe these companies are well-positioned to meet growing demand for food and the need for efficient agricultural solutions.
2 Source: Observatory for Economic Complexity; Exporters of Wheat by Country (2020).
3 Source: United Nations; 2019 projections.
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S&P GSCI Agriculture Select Index tracks the returns of specific commodity components: corn, wheat, soy beans and sugar.
Bloomberg Agriculture Index tracks the price of agricultural commodities.
An investment in the Fund may be subject to risks which include, among others, investing in agriculture companies, foreign securities, foreign currency, depositary receipts, basic materials sector, consumer staples sector, health care sector, industrials sector, small- and medium-capitalization companies, cash transactions, equity securities, market, operational, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount risk and liquidity of fund shares, non-diversified and concentration risks, all of which may adversely affect the Fund. Foreign and emerging markets investments are subject to risks, which include changes in economic and political conditions, foreign currency fluctuations, changes in foreign regulations, changes in currency exchange rates, unstable governments, and limited trading capacity which may make these investments volatile in price or difficult to trade. Small- and medium-capitalization companies may be subject to elevated risks.
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