Key points in this equity note:
- The grains sector is the best performing in June among all commodities and it has lifted agribusiness stocks up 8.1% in June compared to just 5.1% for global equities.
- The long-term outlook for food prices have improved and thus also the outlook for agribusinesses driving more mergers and acquisitions.
- Climate change is the key upside risk to food prices that could cause food prices to rise faster than what we have observed since the early 1990s.
Extreme weather conditions drive grains higher
As highlighted in our recent commodity notes Commodity weekly: Best month in over a year and COT: Speculators wrongfooted by grains surge June has been good for commodities overall, but especially for the grains sector. Droughts across the Northern Hemisphere have negatively impacted expectations grains production and to make things worse it is happening while commodity markets are on high alert over the return of El Niño which has the potential to aggravate the situation even more.
Higher grain prices have lifted the agribusiness sector in the equity market with the iShares Agribusiness UCITS ETF up 8.1% in June while the global equity market is up 5.1%. The strong performance across agribusiness stocks were also seen in yesterday's US equity market session with positive gains across companies with agribusiness storage, transportation, machinery, seeds, and fertilizer.