Oil prices have gotten a lot of attention since Russia’s invasion of Ukraine. But the price of wheat has soared even more, reaching record highs above $12 a bushel in early March. And rising wheat prices have sent wheat stocks and ETFs on an upward trajectory.
Why has the Russia/Ukraine situation had such a profound impact on wheat prices specifically? Because those two countries account for about 30% of the world’s traded wheat, and right now those wheat supplies are essentially cut off from the rest of the world, thanks to the war. As a result, wheat prices are spiking to levels not seen before.
Take a look at this six-month wheat price chart, courtesy of Macro Trends:
Courtesy: Macrotrends.net
That looks like the opposite of almost every stock chart these days, and even outpaces the 20% rise in oil prices since the war began in late February. And as rising oil prices have boosted energy stocks, soaring wheat prices have buoyed shares of certain publicly traded agriculture and wheat-producing companies.
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Here are two wheat stocks I’d recommend buying on momentum today - and one wheat ETF.
3 Wheat Stocks to Buy Now
Wheat Stock #1: Archer-Daniels-Midland (ADM)
Archer-Daniels-Midland is more an agriculture stock than a wheat stock. Based in Chicago, it’s an agricultural origination and processing company that produces a range of food ingredients, including nuts, oils, beans and, importantly in this case, flour and grains. It’s not a pure play on rising wheat prices specifically, but with food inflation across the board right now – global food prices hit their highest level ever in March before easing slightly in April – ADM (as it is more commonly known) is benefitting from higher prices across the entire food spectrum.
Sales are expected to rise 11.8% this year, with 19% earnings per share growth. Those projections may be conservative: in the first quarter, sales improved 25% while EPS growth came in at 53%, beating analyst estimates by 34%.
As for ADM stock, it’s up 25% year to date and yet still trades at just 15 times forward earnings. With a modest dividend yield (1.9%) to boot, this is a solid large-cap stock ($48 billion market cap) to buy for this era of high food inflation.
Wheat Stock #2: Bunge Limited (BG)
Another diversified agribusiness and food company, Bunge Limited actually specializes in soybeans (where prices are also going through the roof), but grain trading is close behind. It sells food all over the world, including North America, Europe, India and Brazil; you may be familiar with its Whole Harvest brand.
Sales were up 43% in 2021, while earnings per share improved by 82%. Both figures are expected to slow considerably this year, but the stock is cheap at just 8 times forward earnings, pays a respectable dividend yield (1.9%), and has plenty of momentum, up 19% year to date despite a sharp decline in the last three weeks after topping out at all-time highs above 126 (it currently trades at 112).
However, as long as wheat and soybean prices stay high, so should BG’s share price. Given the low valuation and still-appealing growth (2022 estimates: 17% sales growth, 5.5% EPS growth), this recent dip looks like a decent entry point, assuming the market can get in gear.
The Wheat ETF
Of course, you could skip these two wheat stocks and just buy the Teucrium Wheat Fund (WEAT), which is outperforming them both! The fund, which primarily tracks wheat futures, is up a whopping 66% year to date, and hasn’t dipped the way the other two have in the last three weeks.
WEAT moves in tandem with wheat prices, which have begun rising again in the last weak. Prior to the Russia-Ukraine war, prices - and WEAT - hadn’t been higher than $8 since 2016. The all-time high for WEAT since its 2011 inception was $25, way back in 2012. So there’s plenty of upside still here as the war in Ukraine continues to rage.
Bottom Line
Very few stock or ETF charts these days look like the three I just showed you. Outside of the energy sector, basically every other sector is down for the year, thanks primarily to inflation and the Russia/Ukraine situation. Food companies, and particularly those that derive a high percentage of their revenues from producing and trading wheat, actually benefit from each of the two things that have been weighing all other stocks down.
So if you’re looking to buy during this time of pervasive uncertainty, these three wheat plays are among the very few equities/funds I’d recommend at the moment.
Do you own any food inflation plays in your portfolio? Tell us about them in the comments below.
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*This post has been updated from an original version.
