Food Prices Are Up

Food Prices Are Up

Seeking to Insulate Yourself from Food Inflation

Grocery bill got you down? You’re not alone. Americans, on average spend nearly 10% of their income on food.[1] 

Some folks will stare at higher grocery bills, shake their heads, and complain about higher prices. Others will take action and seek to profit from the market trend. If you’re in the latter camp, it is our hope that you will take a closer look at agricultural commodity ETFs and consider potentially adding them to your portfolio(s). 

The 3.5% year over year increase in food expenditures is taking a bite out of everyone’s budget.[2] While this may not be a big bite, it is noticeable; especially given core inflation (i.e. consumer prices excluding food and energy) is relatively benign increasing by 1.6% YoY.  

Chart created by Teucrium using Bloomberg Finance L.P. on 04/25/2021

US CPI Urban consumers Food Inflation Year over Year

Past performance does not guarantee futures results.

Financial advisors with whom we speak share that their clients are increasingly worried about rising prices and are looking for ways to hedge their living expenses. As such, many are considering using ETFs to gain price exposure to commodity futures prices as an inflation hedge. This exposure can be gained through single commodity funds or through a diversified fund. For example, an investor looking to gain access to wheat futures prices could consider the Teucrium Wheat ETF (ticker: WEAT). For those interested in sugar there is the Teucrium Sugar Fund (ticker: CANE). For investors who are not interested in picking individual commodities but still want exposure to agriculture there is the Teucrium Agricultural Fund (ticker: TAGS). 

TAGS is a long only, equally weighted, passive, fund of funds, holding the four single commodity funds offered by Teucrium namely, CORN, WEAT, SOYB, and CANE. The diversified nature of TAGS historically has meant less volatility relative the individual underlying funds. Investors and traders who prefer more volatility are more likely to invest in the single commodity ETFs. 

For example, in Q1 2021, the CORN NAV[3] was up 13.32%, the WEAT NAV was down 2.70%, the SOYB NAV was up 10.73% and the CANE NAV was up 4.6%. TAGS NAV was up 6.14%, which is solid performance in a 3-month time frame. Yet TAGS clearly lagged the performance of CORN, while at the same time handily beating WEAT.[4] Note that out of the 5 funds that we offer, TAGS, statistically will be the least volatile while providing exposure to the space.

Note too that TAGS historically, has a low correlation to stocks. This suggests that TAGS might not only be a hedge against higher food prices, but declining stock prices as well.

Agriculture In Your Portfolio

Futures prices of corn, wheat, soybeans, and sugar historically have low correlations to the S&P 500. In fact, you can see on the chart below that gold historically, has a much higher correlation to stocks than these four agricultural commodities. With many concerned about “potentially stretched” valuations in equity markets, adding assets with low correlations to stocks may be worth the consideration. 

Agricultural ETFs can be held as part of a diversified portfolio, helping to round out an investor’s commodity allocation. See the hypothetical portfolio below. 

Note that options are available on Teucrium’s single commodity ETFs. Please consult your financial advisor and/or broker with questions pertaining to options or trading strategies in general. 

[1] https://www.ers.usda.gov/data-products/ag-and-food-statistics-charting-the-essentials/food-prices-and-spending/#:~:text=In%202019%2C%20Americans%20spent%20an,from%20home%20(4.6%20percent).

[2] As of 03/31/3031. April data to be released on 05/12/2021

[3] Net Asset Value: The dollar value of a single share, based on the value of the underlying assets of the fund minus its liabilities, divided by the number of shares outstanding. Calculated at the end of each business day.

[4] Performance figures taken from Teucrium Funds Q1 Factsheets available at www.teucrium.com