Worried about runaway crude oil prices? I think the strife-torn agriculture sector could pose an even bigger threat to global economic stability, although you wouldn’t know it by watching the news.

The Greek philosopher Socrates stated: “Nobody is qualified to become a statesman who is entirely ignorant of the problem of wheat.” Ask a politician or pundit nowadays a question about wheat and you’ll probably get a blank stare.

Crude oil dominates the headlines, whereas skyrocketing agricultural prices and food scarcity aren’t getting much coverage in the media. Below, I’ll explain how investors should play agriculture’s current imbalances.

Ukraine: breadbasket no more…

During the Russia-Ukraine war, food supply disruptions could prove worse than those for crude oil. Before Russian President Vladimir Putin launched his invasion, Russia and Ukraine combined represented more than 25% of the world’s wheat exports.

In 2021, Russia was the world’s leading exporter of wheat. Now, Russia is saddled with a growing list of sanctions and Ukraine is a bloody battlefield strewn with civilian casualties. Wheat production is getting hammered.

The world has lost 30% of its wheat export capacity because of the war. Wheat prices are up 70% over the last month to hit a new all-time high, as measured by the continuous wheat contract on the Chicago Board of Trade (see chart).

Rising prices for wheat, corn, soybeans, and a host of basic food commodities are showing up on the grocery shelves. Food and energy are the main drivers of inflation right now.

Read This Story: Do We Face $200 Per Barrel Oil?

The White House on Tuesday imposed a ban on Russian oil imports. Higher crude is boosting inflation and threatening the global economic recovery; it’s also causing considerable pain at the gasoline pump. Many analysts predict that oil could hit $200 per barrel in coming weeks.

On Tuesday, the major U.S. stock indices performed as follows: the Dow Jones Industrial Average -0.56%; the S&P 500 -0.72%; the NASDAQ -0.28%; and the Russell 2000 +0.60%. In pre-market futures contracts Wednesday, U.S. stocks were trading sharply higher on hopes for Russia-Ukraine negotiations. (Because of Putin’s intransigence and megalomania, I view such hopes as futile.)

Russia is not Saudi Arabia…

Several factors mitigate the severity of the energy emergency. For starters, Biden’s Russian oil ban was priced into the market. When it was officially announced Tuesday, oil prices pulled back, which in turn cheered investors. Brace yourself for continued mood swings on Wall Street.

To be sure, Russia is a major oil producer. But the country accounts for only about 11% of world production. Back in the 1970s, during the last oil shock, Persian Gulf producers extracted a third of the world’s crude (see chart).

What’s more, the global economy is considerably less reliant on crude oil than in the past. Consider “oil intensity,” a metric used by economists to gauge the number of barrels of oil consumed per real dollar of the world’s gross domestic product. Oil intensity is half what it used to be in the 1970s.

Then there are alternative supplies that the Biden administration is wooing to make up for the Russian shortfall in production, notably erstwhile pariahs Iran and Venezuela. Regardless, U.S. oil imports from Russia represent only about 5% of Russian production.

Everyone’s gotta eat…

Food could become a worse crisis than oil. Agricultural assets should enjoy multiyear price momentum, as the globe contends with a looming food crisis. In this era of globalization, the world’s food supplies are so interlinked that disruptions anywhere, regardless of whether they’re related to weather, politics or the pandemic, have significant ramifications on the rest of the world. The same is true for any component of the commodities complex, whether it’s metals or energy.

Exploding demand for food, feed and fiber will soon outpace agricultural output if demand and production levels remain the same. Climate change poses a particular threat to agriculture, as farmers try to get greater yields from less and less arable land, to feed ever-growing populations.

We’re witnessing the confluence of several trends: the (albeit waning) pandemic, geopolitical turmoil, agricultural destruction, population growth, the rise of ag-tech, and an expanding global middle class.

Together, these trends create powerful tailwinds for agricultural commodities, the often-neglected hedge for times of crisis. About 25% of your portfolio should contain a hedges sleeve; also make sure this sleeve contains assets such as agricultural-linked stocks and exchange-traded funds. In this time of geopolitical crisis and rising inflation, few commodities are as precious as food.

John Persinos is the editorial director of Investing Daily.

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