Inflation: ‘We’ve seen food prices just explode’ over the last 1-2 years, BlackRock strategist says

BlackRock U.S. Head of Thematic and Active Equity ETFs Jay Jacobs joins Yahoo Finance Live to discuss global recession risks, inflationary pressures, supply chain woes, consumer spending, and the outlook for agricultural producers.

Video transcript


JULIE HYMAN: You know we've been focused on commodities as of late, as we have seen a pullback in some of them. And the ags are no different, wheat, corn, soybean futures all trading lower today. We've got supply chain setbacks persisting, of course many of them triggered by the Russian invasion of Ukraine. Our next guest says, over the short and medium term, investors should consider agriculture as an inflation hedging asset.

BlackRock US Head of Thematic and Active Equity ETFs Jay Jacobs is joining us now. Jay, it's good to see you. Obviously, we have seen this short-term pullback. There's concerns about a global recession, what effect that's going to have on demand for agriculture. Do you think that the elements are still in place for a resumption of the rally there?

JAY JACOBS: Absolutely. I mean, when we look at some of the one-year and two-year trends, we've seen food prices just explode. Over the last two years, the World Bank commodity food price index is up 80%. Over the last year in the United States, we've seen meat, poultry, fish, my personal most challenging one, coffee, all up 15%.

Yes, we've seen a little bit of a pullback recently, but we still see the frictions in the economy that are causing these inflationary pressures. It's the war in Ukraine. It is the disrupted supply chains. It's the continued consumer spending, all of which are contributing to sustained high food prices.

BRAD SMITH: And so Jay, to that end, to what extent are you placing an outsized kind of weighting on what international heads have to say about where they're going to be sourcing some of their imports from on the commodity side specifically within agribusiness and agriculture?

JAY JACOBS: Well, we think there's a near-term opportunity here and a long-term opportunity. So the near-term opportunity is, who's producing food today? Because when you have so much supply coming offline, you have 30% of wheat exports coming from Russia and Ukraine, which are basically offline now, that means all the other producers get to kind of step into that void and, frankly, benefit from the higher prices. So that's benefiting today's agricultural producers.

Tomorrow's agricultural producers look very different though. These are bioengineered crops that can be more resilient to droughts. These are technology companies that are facilitating indoor farming, hydroponics, year-round vertical farming. It's robotics companies that are helping harvest our agriculture.

So there's a lot of new age, disruptive companies that are coming into the ag tech space that we think are providing the solutions to the food shortages we're seeing today and, frankly, will address the ongoing issues we see, as we have a growing population and a rising middle class, which is demanding more complex foods.

JULIE HYMAN: Now, there are different ways to play this through, coincidentally, BlackRock ETFs. There's an iShares MSCI Global Agricultural Producers ETF, VEGI, very appropriately, the ticker there. And then on the more emerging side that you're talking about, it's IVEG, I-V-E-G. When you're looking at those new ag tech producers though, obviously you've seen the same shape in that chart that you have seen in so much of emerging technology of any kind. And so I wonder what the investment cycle and the R&D cycle is going to be like for these companies over the next year. And if we potentially hit a recession, is it really going to crimp the development that they're doing?

JAY JACOBS: We think this is a really resilient theme. So if we go back to last year, there was about $40 billion in venture capital that went into ag tech solutions. So that's really kind of at the very beginning of innovation, all that venture capital money that's going into these disruptive concepts around agricultural technology.

But then looking forward, food is essential. We can see technology stocks sell off. We can see a rotation from growth to value. We can see maybe a hobbled economy going forward. People still have to buy food. That is Maslow's hierarchy. That is going to be the most important thing that people buy in their life. So it gives us a certain amount of confidence and resilience in this theme that, despite the broader economic environment, we still have a lot of conviction that this will be growing going forward.

BRAD SMITH: Even within this space, for companies that are not publicly traded, there's been a ton of VC money that's gone towards the broader ag tech space as well. Do you expect that, in a pullback like this, to continue, given some of the broader trends that you're looking at?

JAY JACOBS: I don't. If anything, we've seen the need for more investment in this space. Right now, so let's put aside what's happening in the world today. Let's just project forward 10, 20, 30 years. We're going to have a population that'll reach 10 billion people. We will have an emerging market consumer that will increase the middle class by hundreds of millions of people that are going to be demanding more complex proteins, meats, dairy, organic vegetables.

That's going to put a lot of pressure on our food system, regardless of what happens in this inflationary environment today. So even though we're having challenges because of geopolitical risk, because of supply chain issues, if we project forward 20 years, a lot of these problems are not solved. In fact, they get worse. They're exacerbated by many of the challenges we see on increasing food demand.

So the ag tech investment has to happen today. I think venture capital and the public markets both recognize that. And that's why we're seeing a lot of money coming into these strategies.

JULIE HYMAN: Jay, thanks so much for being here. Jay Jacobs, BlackRock's US Head of Thematic and Active Equity ETFs talking to us about the agricultural investing idea.

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