Food price shocks expose vulnerability of supply

Growing concerns over global food shortages and sudden price hikes have highlighted how vulnerable the entire food chain is and investors should expect more short-term volatility in the coming months, according to agri fund manager Kristof Bulkai.

The Thames River Capital manager, whose Water and Agriculture fund was launched earlier this year, has been closely following world news regarding Russia’s wheat ban exports and the state of other global food suppliers.

‘The reason this is happening is because countries haven’t actually invested in this [agriculture] space for the last 20-30 years,’ says Bulkai. ‘The supply and inventory is so tight that it will cause very sudden jumps in the commodities. The basic thesis is that the price of food and water will continue to rise.’

The London-based manager says the lack of investment has led to a lack of storage space and a shortage in inventories for many food supplying countries. But he believes there is a valuable lesson to be learned from the recent events.

‘Wheat looked very much like a bearish commodity a few months ago, then it turned into a bull market. We went from very bearish to high prices suddenly due to the low level of supply and it has shown how vulnerable the food chain is.

‘Even if there is only a slight chance of weather disruption, the prices can slide. If you have any weather or disease-related disruption to crops, it will manifest itself in big price hikes.’

Bulkai does believe that the sudden price hikes for wheat is slowing down but anticipates, in the longer term, that soft commodities prices will rise and react in a very volatile manner.