Rising food prices can be used as a hedge with exchange traded funds like the Invesco DB Agriculture Fund (DBA).

The month of May was a prime example of how prices are creeping higher.

“Food and drink prices continued their upward trend in May, with basket costs up by 2.5% on April, the latest edition of the CGA Prestige Foodservice Price Index shows,” an article in The Caterer said. “The index recorded month-on-month rises in seven of its 10 categories, as a result of challenges in production and distribution and new Brexit-related costs, meaning that inflation reached the highest point since CGA began measuring food service prices in January 2015.”

In the meantime, investors can use DBA in anticipation of continually rising prices. Though the Federal Reserve has acknowledged that inflationary pressures exist, rising interest rates is something it does not foresee until 2023.

In the meantime, investors can use DBA as a hedge against other assets in their portfolio that could be prone to rising rates. That group could include fixed income assets like bonds.

Supply and Demand Weighing on Food Prices

The forces of supply and demand will continue to weigh on food prices. As such, commodities like corn and sugar could rise.

“May’s mounting inflation came as the hospitality sector reopened for inside service, placing pressure on the supply chain,” The Caterer article continued. “High demand and severe shortages of labour across food manufacturing, agriculture, warehousing, wholesale distribution and hospitality have led many firms to raise pay levels, which it said can be expected to feed through into prices in the months ahead.”

“A combination of the pandemic and Brexit are also causing issues at major ports, slowing down food and drink imports and generating stock-outs in suppliers,” the article added.

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