The one-two punch of rising fuel prices and Russia’s invasion of Ukraine is having a major effect on agricultural commodities. It’s simply becoming too expensive to grow certain crops given the costs involved, or simply because rich farmland is now in a warzone.
Food prices have already been trending up thanks to higher levels of inflation, but that could go much higher in the year ahead. That’s why investors looking to stay long on stocks could fare well with companies all along agriculture’s supply chain.
One leading play?
Bunge (BG). The company is a buyer of crops, such as corn and soybeans, which are then processed into a finished state, and transported or stored as needed.
No surprise, shares have been rocketing higher with a 42 percent gain in the past year. That could be just the start. Earnings are showing just a 32 percent rise over the last year, but that doesn’t account for Q1 2022 numbers or those going forward.
Action to take: Even with the rise in shares recently, the stock trades at about 10 times forward earnings. And the shares yield about 1.9 percent, with a low dividend payout ratio that can keep increasing for years to come.
For traders, a longer-dated call like the October $135 looks like an attractive play here. The option has a bid/ask spread of about $3.20, and can likely see mid-to-high double-digit returns in the coming months ahead.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.
