What the Fertilizer Shortage Means for Commodities | ETF Trends

Food prices are poised to rise further with supply tightening as the war in Ukraine creates a grain shortage as well as a fertilizer shortage which could have broad-reaching impacts, reported CNBC.

In addition to Ukraine being a major exporter of grains for a lot of Europe and the world, Russia and Belarus both collectively supply 40% of the primary component of fertilizer, potash. Additionally, Russia made up 48% of the ammonium nitrate global supply and 11% of the urea supply, both components of fertilizer.

Sanctions on Russia and the inability of one of Belarus’ top fertilizer producers to meet its contracts have caused a global shortage that have sent prices soaring, more than doubling in some areas.

“All of this is a double whammy, if not a triple whammy,” Bart Melek, global head of commodity strategy at TD Securities, said. “We have geopolitical risk, higher input costs, and basically shortages.”

The fertilizer shortage and high prices could lead farmers to rotate into crops that require less fertilizing, affecting supply, as well as the potential for reduced crop yields as they conserve fertilizer.

“Agriculture is absolutely going to get hit. In the case of Canada, it’s good for Saskatchewan, which is the largest producer of potash in the world, but farmers are going to get hurt because per acre, they’re going to pay a lot more,” said Melek. “They’re going to get lower yield simply because they’re economizing, particularly in emerging markets.”

In addition to the price pressures from the fertilizer, shortage are the pressures that grain shortages will put on commodities and basic food costs.

“That’s going to lead to higher input costs for producing everything from grains, wheat, and corn. The input costs are higher now because you’re going to have scarcity that bids the price up as well,” said Melek.

Investing in Commodities While Diversifying

For investors looking to diversify their portfolios in times of inflation and rising interest rates while also capturing any potential increase in commodities pricing, the WisdomTree Enhanced Commodity Strategy Fund (GCC) can be an excellent option. GCC has seen net inflows of $83.39 million since the beginning of the year.

GCC invests in a basket of commodities and bitcoin futures in seeking diversification in assets that are uncorrelated to most equities and fixed income returns. The fund is an actively managed ETF that offers broad exposure to the following commodities sectors: agriculture, energy, industrial metals, and precious metals, mainly via futures contracts. It can also invest up to 5% of its net assets into bitcoin futures contracts, a regulated space under the purview of the CFTC, but it does not invest directly in bitcoin.

The current weighting of GCC is 30.62% to energy, 22.74% to industrial metals, 19.46% to grains (agriculture), 13.79% to precious metals, 6.58% to softs (agriculture) such as cotton and sugar, 3.69% to livestock (agriculture), and 3.12% to bitcoin futures.

GCC carries an expense ratio of 0.55%.

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