In January, US consumer prices charged higher as the Consumer Price Index (CPI) for All Urban Consumers (CPI-U) went up by 0.6%. Inflation now stands at 7.5%, the highest figure in four decades.
A detailed analysis of the report shows that “The food index increased 0.9 percent in January.” Furthermore, according to the food at home index, the nonalcoholic beverage segment was the only grocery store group where the price remained unchanged. Prices for all other products increased.
Now, economists as well as consumers are fixated on inflation levels announced by the Labor Department. Many debate whether the number will peak in early 2022 and then retract. However, not everyone is convinced that we are at the top, as evidenced by the stock market volatility and negative sentiment on Wall Street.
Meanwhile, analysts also pay attention to the FAO Food Price Index (FFPI) announced by the Food and Agriculture Organization (FAO) of the United Nations (UN). The FFPI measures “the monthly change in international prices of a basket of food commodities.” In January, the index was 1.1% higher than a month ago.
The average of five commodity groups factor in the calculation of the FFPI including the FAO Vegetable Oil Price Index, FAO Cereal Price Index, FAO Dairy Price Index, FAO Meat Price Index and FAO Sugar Price Index.
Put another way, food prices are soaring in the US and worldwide. Therefore, today’s article introduces two agricultural exchange-traded funds (ETFs) that could appeal to investors looking for returns in this inflationary environment. We should remind readers that we recently covered other related funds.
1. First Trust Indxx Global Agriculture ETF
- Current Price: $32.05
- 52-week range: $28.61 - $32.75
- Dividend yield: 1.50%
- Expense ratio: 0.70% per year
Recent research by George Silva of Michigan State University suggests “that global agriculture production has to be increased by about 60-70 percent from the current levels to meet the increased food demand in 2050.”
Therefore, Wall Street pays close attention to the sector. The First Trust Indxx Global Agriculture ETF (NASDAQ:FTAG) invests in firms in the agricultural space. These companies can be chemical and fertilizer manufacturers, seed producers or distributors of farm equipment and machinery. The fund focuses on companies that are improving agricultural yields. It was first listed in March 2010.
FTAG, which has 51 holdings, tracks Indxx Global Agriculture Index. The top 10 holdings account for close to 58% of net assets of $9.3 million. Thus, it is a small fund.
In terms of the sub-sectors, we see materials (53.61%), industrials (29.45%), health care (8.61%) and consume staples (5.98%). Close to 29% of the companies come from the US. Next in line are businesses from Germany (22.70%), Japan (7.90%), India (7.19%), Canada (6.78%) and Qatar (4.83%), among others.
Leading holdings on the roster include the chemical industry giant BASF (OTC:BASFY); equipment manufacturer Deere (NYSE:DE); provider of crop inputs and services Nutrien (NYSE:NTR); German pharma and life sciences heavyweight Bayer (DE:BAYGN) (OTC:BAYRY); and Industries Qatar (QA:IQCD), which focuses on petrochemicals, fertilizers, energy and steel.
The ETF is up 10.5% in the past 12 months and 5.2% year-to-date (YTD). P/E and P/B ratios are 15.17x and 2.07x. FTAG could be appropriate for investors who want an equity-based exposure to the agricultural sector.
2. Teucrium Agricultural Fund
- Current Price: $28.67
- 52-week range: $21.36 - $29.06
- Expense ratio: 0.18% per year
Our next fund, the Teucrium Agricultural Fund (NYSE:TAGS), enables investors to gain exposure to moves in the price of corn, wheat, soybean and sugar futures. The fund started trading in March 2012, and net assets stand around $12.5 million.
TAGS currently invests in four other funds in equal amounts. They are:
- Teucrium Corn Fund (NYSE:CORN) - up 9.1% YTD;
- Teucrium Soybean (NYSE:SOYB) - up 16.0% YTD;
- Teucrium Sugar (NYSE:CANE) - down 3.0% YTD;
- Teucrium Wheat (NYSE:WEAT) - up 4.3% YTD.
TAGS returned 27.5% in the past 52 weeks and 6.4% YTD. In other words, 2021 has been a banner year for the ETF and 2022 has also started on a high note. Readers with an interest in grains might want to research the fund further.