Commodity Inflation Hitting Food Stocks

Food stocks are underperforming so far this year, held down by escalating commodity inflation that will depress margins at these slow-moving giants. The Invesco DB Agriculture ETF (DBA) lifted to a 52-week high this week, with wheat trading at a six-year high and corn at seven-year high, highlighting challenges for big players that include Kellogg Company (K) and Campbell Soup Company (CPB). Even top 2020 sector performers are feeling the heat, with General Mills, Inc. (GIS) and Hormel Foods Corporation (HRL) descending rapidly from multi-year highs. 

Key Takeaways

  • Wheat and corn futures are trading at multi-year highs.
  • Rising commodity inflation has triggered a selloff in food stocks.
  • It's harder for these companies to find investors during periods of rising interest rates.
  • Kellogg stock could trade into the lower $50s before attracting committed buying interest.

The companies are getting hit with a one-two-three punch because they're also defensive plays that pay high dividend yields. That has kept them afloat during periods of risk aversion and low interest rates, but the yield curve is now steepening while the CBOE 10-Year Treasury Yield Index (TNX) has lifted to a 10-month high. This makes high equity yields less attractive because investors can seek better returns through faster-moving equities and the bond markets.

Passive management has also contributed to lagging performance, as evidenced by Kellogg, which owns MorningStar Farms. The processor had a golden opportunity to capitalize on huge interest in plant-based meats but did nothing until waves of competitors hit the market. Even so, it's trying to play catch-up, partnering with Dunkin' to launch a new plant-based menu option. Unfortunately, the company has already lost enormous revenue to Beyond Meat, Inc. (BYND) and privately held Impossible Burger.

Agriculture ETF Monthly Chart (2008 – 2021)

Chart showing the share price performance of the Invesco DB Agriculture ETF (DBA)

The majority of commodity-dependent food stocks are likely to trade inversely to the agricultural fund in coming months. This instrument posted an all-time high in the $40s in 2008 and lost two-thirds of its value during the economic collapse. It settled in the lower $20s and turned higher into the new decade, posting a lower high in 2011. Bears then took control once again, completing a 2016 double top breakdown that translated into a steep multi-year downtrend.

The fund hit an all-time low at $13.15 during 2020's pandemic decline and turned higher in July. It broke out above four-year trendline resistance in November, setting the stage for additional gains that should ease around the 50-month exponential moving average (EMA), which has acted as resistance for nearly 10 years. A pullback from that level could offer low-risk buying opportunity or a perfect time to unload long-term exposure.


Inflation is the decline of purchasing power of a given currency over time. A quantitative estimate of the rate at which the decline in purchasing power occurs can be reflected in the increase of an average price level of a basket of selected goods and services in an economy over some period of time. The rise in the general level of prices, often expressed as a percentage, means that a unit of currency effectively buys less than it did in prior periods.

Kellogg Monthly Chart (2000 – 2021)

Chart showing the share price performance of Kellogg Company (K)

The stock currently pays a 3.86% forward dividend yield. It posted a low at $20.75 in 2000, marking the first point in a shallow rising trendline that has now persisted for more than two decades. A multi-year uptrend hit an all-time high at $87.16 in 2016, giving way to a steep decline that found support at the trendline in the second quarter of 2019. It posted a 52-week high at the end of 2019 and rolled over, bouncing at the trendline once again. 

Bullish action reached the low $70s in the middle of 2020, but a breakout attempt failed in July, yielding a steady downtick that has just pierced the $60 level for the first time since March 2020. The stock is now trading about five points above the trendline at $54, at the same time the monthly stochastic oscillator has crossed into the oversold zone. As a result, selling pressure is likely to increase in coming weeks, bringing the trendline into play for the sixth time since 2000.


Trendlines are easily recognizable lines that traders draw on charts to connect a series of prices together or show some data's best fit. The resulting line is then used to give the trader a good idea of the direction in which an investment's value might move.

The Bottom Line

Rising commodity inflation has put a lid on food stocks, raising the odds for a year of lagging performance.

Disclosure: The author held Kellogg and Campbell Soup in a family account at the time of publication but no positions in the other aforementioned securities.

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