Commodities have rallied this year and agricultural products have joined the party in the past month.
That could translate into higher food prices and overall inflation, complicating the job of the Federal Reserve, which faces considerable political blowback if it moves to boost its key short rate from the current range of 3.5% to 3.75% this year.
The developing El Niño climate pattern driven by a warming in the waters of the tropical Pacific Ocean could boost food prices because El Niño developments historically have led to weather disruptions, including droughts and heavy rains in different parts of the world
Corn and soybean prices are up over 10% in the past month with December corn futures at $5.39 a bushel, near its highest level since 2023. Soybeans futures are trading above $13 a bushel-fulfilling bullish hopes of grain traders who talk about "beans in the teens."
Wheat futures also have gained, and trade for about $7.50 a bushel. The advance in the grains has been fueled by weather, dislocations caused by the Ukraine war and buying by commodity trend-timing funds.
Consumer food price increases have moderated in recent months, gaining 0.1% in July and 3% over the past 12 months, based on the July CPI report. Overall prices are up 3.4% in the past year. That trend could reverse heading into 2027.
Higher agricultural, energy and fertilizer prices are putting a squeeze on farmers. Diesel fuel, used to power farm equipment, is nearly $6 a gallon and trades at record levels and a big premium to gasoline now above $4 a gallon nationally.
In a client report in July, JP Morgan analysts including Nora Svenitinayi wrote that a "super El Niño and oil" would be a "double whammy for food prices." They projected that global food prices, now rising at a roughly 3.5% rate, could top 5% in the first half of 2027.
Even before the recent uptick in agricultural commodity prices, overall commodity prices had been strong in 2026, led by oil which is up over 50% to $89 a barrel as measured by West Texas Intermediate crude.
For investors, there are many ways to play commodities, including exchange-traded funds keyed off agricultural commodities and food-related stocks.
The broader Invesco DB Commodity Index Tracking Fund (ticker DBC) has a heavy exposure of energy of close to 50%-mostly oil-and is up over 40% this year to around $32 a share.
The abrdn Bloomberg All Commodity Strat K-1 Free ETF (BCI) is up 33% this year to around $26 a share. It has about 35% in energy, 24% in agricultural commodities and 15% in precious metals.
The Invesco DB Agriculture Fund $(DBA)$ has risen about 14% this year to $29 a share and has about 40% invested in corn, soybeans, cattle and wheat.
There are commodity specific options like the Teucrium Corn (CORN) and Teucrium Wheat $(WEAT)$ ETFs.
There also are ETFs that buy food-related companies like the VanEck Agribusiness ETF $(MOO)$ whose top three holdings, amounting to about 25% of the fund, are Bayer, Corteva and Deere. This ETF is up about 20% this year.
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