Soft Commodities are BOOMING

Soaring prices for basic soft commodities like maize, wheat, sunflower and soya have pro's and con's

If you are a farmer and your getting a material increased year-on-year in every ton of production (despite input costs like fertilizer, fuel and chemicals) having risen sharply you will still be smiling given the dramatic surge in soft commodity prices since Russia's war with the Ukraine

Those countries are major exporters of food stuffs and their expected reduction in global supply has seen prices for basic field crops soar

The chart I post shows the gains year to date and since the cycle started in 2020

So, agricultural companies do well in this environment and anyone that suppliers into that sector like fertiliizer stocks (Omnia) and capital equipment companies and retailers specialising in the sector (Kaap Agri, TWK, Senwes) 

Food stocks do badly as their manufacturing costs rise very sharply and they are often unable to recover the rising cost of inputs from the consumer given the sharp rise in prices so profit margins are squeezed

This is what has occurred over the past 18 months in the JSE food producers sector. Companies like Tiger Brands, AVI, Rhodes and Libstar have all warned on increased food price inflation and margin pressure

I have been a position of being short food producers and long agriculture since mid-2020. That has been the best move. I maintain that view and anticipate that the second-half of 2022 will be very tough for food stocks in general. I continue to avoid them for the very reason this soft commodity price matrix details