Time to Buy Some “Food Insurance”

Food Industry, Insurance, Options

With my conservative investment strategies, I do not have much reason to worry about the current stock market correction. I know that if I accumulate dividend-paying shares for cheap while others are selling, my income and wealth will be much greater when the market recovers. And it always recovers.

I am, however, concerned about a coming global food crisis. We live in a time in which grains and other food types are produced in the strong agricultural countries and exported to places where it is hard to grow crops. For example, in 2021, Egypt imported 80% of its wheat from Russia and Ukraine.

Those imports aren’t happening right now.

So last week, I decided to buy some “insurance” against the possibility of food prices going parabolic…

Here are some recent news items that should have you thinking about what will happen as we move forward in this year of shortages and inflation, via Momentum Structural Analysis:

  • India has halted wheat exports effective immediately, citing food security due to the spike in global food prices and heat waves afflicting the nation. The country is the world’s second-largest wheat producer.
  • Argentina already put limits on corn and wheat exports late last year. Argentina is the seventh-largest wheat exporter and third-largest corn exporter globally.
  • Indonesia banned exports of palm oil at the end of April. It is the world’s largest producer of palm oil; the largest importers are India, Pakistan, and Spain.
  • There have been violent riots in Sri Lanka due to rising prices of everyday goods and foods as well as electricity shortages. Politicians’ homes and vehicles are being destroyed. Hundreds of protesters have been killed by police defending politicians’ homes.
  • There have been protests in Iran due to rising food prices. The government recently cut food subsidies.

One of the reasons is that Russia has blockaded Ukrainian ports, sharply reducing Ukraine’s exports of grains and other foods.

Anecdotally, I have heard of farmers leaving fields fallow due to the high costs of fertilizer, fuel, and seeds. And I know in the upper Midwest, the planting was very late due to cold weather that lingered into early May.

From these reports and similar news, it seems that the world could face a severe food shortage as we go through the year. A lot depends on harvest results this Fall and what happens between Russia and Ukraine over the summer.

Additional challenges may come in the fall as the world assesses the success of the 2022 harvest.

Because of the potential for severe food shortages and disruptions as we go through the year, last week, I decided to buy some “insurance” against the possibility of food commodities skyrocketing.

I purchased long-dated calls on the Invesco DB Agriculture ETF (DBA) – to be precise, October 21, 2022 calls, about a dollar out-of-the-money. You can purchase the contracts for less than $100 per call. For each dollar DBA goes above the strike price, the calls will appreciate by $100.

I rarely make speculative trades, but this one seems to make sense. Last week I sent the trade recommendation to my Dividend Hunter Insiders subscribers, too.

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