>
No, you’re not imagining it, as a visit to the supermarket will prove: prices have skyrocketed.
Food prices rose 16.5 percent in the year to November, according to the Office for National Statistics – the highest increase since the 1970s.
Analysts now expect higher prices to add as much as £682 to the average annual shopping bill.
According to the Office for National Statistics, food prices rose 16.5% in the year to November – the highest increase since the 1970s
As shoppers spend hundreds of pounds extra at the tills, you wonder who benefits – and how investors can get a slice of the pie.
With so many people struggling, investing in food inflation may seem like an opportunistic move.
But as an investor, you should see it as a ploy to recoup some of the higher fees you pay at the box office through a better return on your nest egg. So where should you look?
Vladimir Putin’s war in Ukraine has put enormous pressure on the supply of many basic foodstuffs, causing prices to skyrocket.
In the immediate aftermath of the invasion, the UN’s food price index rose by some 20 percent – with global wheat supplies relying on exports from both Russia and Ukraine.
Like the oil industry, food production is dominated by large multi-billion dollar companies with a global footprint.
Historically, these companies have been popular with dividend hunters, who see them as a source of steady profits.
But the war has accelerated stock prices. Shares of US wheat producer ADM (Archer-Daniels-Midland) are up 33 percent this year.
Wheat producers do not like to be seen as profiting from the war and do not say how events in Ukraine affect their margins.
But independent analysis has suggested that ADM’s profit margins could increase by as much as a third.
Fertilizer companies have also seen stocks rise. When Putin’s tanks rolled into Ukraine, shares in US-listed Mosaic rose 75 percent on fears that Russian fertilizer exports would disappear.
Vladimir Putin’s war in Ukraine has put enormous pressure on the supply of many basic foodstuffs, sending prices skyrocketing
The share price has since lost ground, but is still 22 percent higher than in January.
Meanwhile, tractor giant Deere & Co has reported huge interest as countries try to boost domestic food production and reduce reliance on imports.
Shares are up 20 percent since January, with investors also enjoying an 8 percent dividend increase.
Unlike investment sectors such as technology and energy, food production has traditionally not been a major focus for specialist fund managers.
The Sarasin Food & Agriculture Opportunities Fund is one of the few exceptions and invests across the food supply chain. Current holdings include Deere & Co, as well as Canadian fertilizer producer Nutrien and US caterer Aramark.
Over the past five years, the fund is said to have turned an investment of £10,000 into £16,000. Investors should be aware, however, that performance has slipped recently, with a 10 percent drop this year.
ADM is part of the Artemis Global Income Fund, alongside US retailer CVS and Swiss mining giant Glencore.
By reinvesting dividends, the fund has turned £10,000 into £12,300 over five years. ADM has also proven to be a suitable choice for Premier Miton Diversified Dynamic Growth Fund. The global growth fund has returned 30 percent since it launched three years ago.
Unlike investment sectors such as technology and energy, food production has traditionally not been a major focus for specialist fund managers
Judging by the recent performance of the UK’s largest grocers, you’ll struggle to cash in on rising prices at the tills.
Higher costs, supply chain problems and the struggle to attract customers chasing low prices mean that some supermarkets are earning less than before the war in Ukraine.
While revenue (the amount of money flowing through the tills) at Tesco is up 3.5 percent, operating profit (the amount of money made from that revenue) is down 9.8 percent from last year.
It’s a similar story for Sainsbury’s, whose profits fell 8 percent in the first half of 2022. Both companies have seen their share prices fall by about a fifth this year.
But stock market analysts warn against writing them both off as investments. They could well bounce back from here.
Matt Britzman, an analyst at Hargreaves Lansdown, points to Tesco’s strong balance sheet and increased dividend as reasons for investors to remain optimistic.
Investment analyst Susannah Streeter sees a recruitment campaign at Sainsbury’s as a sign that the retailer expects a busy Christmas. And that could boost the share price.
However, both retailers face an ongoing threat from the twin powers of Lidl and Aldi. The two discounters now control 16 percent of the grocery market – their strongest market share to date – as shoppers look for low prices.
Both brands are privately owned, meaning their shares are not publicly traded.
moneymail@dailymail.co.uk
Some links in this article may be affiliate links. If you click on it, we may earn a small commission. That helps us fund This Is Money and use it for free. We do not write articles to promote products. We do not allow any commercial relationship to compromise our editorial independence.