“Agricultural commodities could offer a hedge against inflation”: the report by Aneeka Gupta, director and macroeconomic Research (WisdomTree)
While theinflation gallops and breaks through the roof by 7%, the war between Russia and Ukraine advances and the stock markets suffer sharp falls, the question that arises spontaneously is: in such a volatile climate where should you invest your savings? In this regard, Aneeka Gupta, Director, Macroeconomic Research of WisdomTree, analyzes what are the guidelines to follow regarding: “profitable” investments e agricultural raw materials. Commodities which in 2022 have recorded excellent performances and which could represent one “safe” shielddespite the volatility dictated by the weather conditions, against inflationary speculations.
THE agricultural commodity prices they were pushed further up by the rise in prices of cereals and oilseeds. In a period of about 13.88% sell-off in global equities with skyrocketing inflation and tightening liquidity conditions, the price of agricultural commodities rose 26.8%.
There is a number of supply-side and war-related issues that are likely to continue fuel prices: increased protectionism and fertilizer costs, changes in mandates related to biofuels and adverse weather conditions, to name a few. The conflict between Russia and Ukraine has produced ripple effects, from disruption of supply chains to rising fertilizer costs.
Rising protectionism pushes agricultural commodity prices up further
The perturbations related to the war have also triggered a phase of protectionism: to cite a few examples relating to 2022, India, the third largest producer of wheat in the world, has announced which allegedly applied export restrictions to manage national grain stocks, thus causing a sharp spike in wheat prices.
On April 28, Indonesia also announced a ban on exports of palm oil, but on May 19 he revoked it following the protests of hundreds of farmers who formed a common front against this political choice. In a market as small as oilseeds, the initial announcement sent the price of soybean oil, an alternative to palm oil, skyrocketing.
Tighter biofuel blending mandates will boost demand for corn and soybean oil
Even the changes made to the mixing obligations they should fuel the demand for agricultural commodities. The United States is the world’s largest market for biofuels, and the Biden administration is ordering refineries to promote their use, including the use of corn-based ethanol, for example.
The United States Environmental Protection Agency asks the refineries to mix 20.63 billion gallons of renewable fuels for gasoline and diesel this year, an increase of 9.5% from last year’s target; in doing so you will exercise a certain pressure on refineries, resulting in a positive net impact for the biofuel industry. Cereals such as corn will benefit due to their high starch content and relative ease of conversion to ethanol.
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