By Jim Wiederhold
With the exception of intermittent fasting groups or keto dieters who tend to ignore it, breakfast is considered by many to be the most important meal of the day. Now there is a reliable and publicly available tool reference for the performance of the most liquid products generally consumed at breakfast. the S&P GSCI Dynamic Roll Breakfast (JO 5% capped) is a production-weighted global index offering another example of thematic ways of looking at commodity allocations within portfolios. A liquidity-based allocation to orange juice (JO) has been incorporated into the construction of the index because breakfast without JO is like a day without sunshine. With a three-year annualized total return of 20.15%, performance outperformed broad equities, other asset classes and even the market standard commodity benchmark, the S&P GSCI, by 5 % annualized. If breakfast products were its own staple sector, it would have been the second best performer over the past three years (see Figure 1).
The heavy weighting of agriculture in the index, at around 90%, is clearly the main performance driver for breakfast. Not to mention the bacon, lean pigs currently have a weight of around 10% to complete the theme. Corn and wheat make up the bulk of the index because these two breakfast products are by far the most produced and consumed products in the world; about two billion tons of corn and wheat are produced each year in total. The other products are much smaller, and this is reflected in the current percentage weightings at the end of April (see Table 2).
The growing concern of central bankers over food inflation highlights the importance of agricultural commodities for the global economy, both from a societal and environmental point of view. This new index may offer a way to gain exposure to themes such as inflation and geopolitics. The conflict between Ukraine and Russia is disrupting global food and energy supplies to an unprecedented degree. The tightening of the global wheat supply is a perfect example. Ukraine is considered the breadbasket of Europe and around one third of world wheat exports come from the Ukraine/Russia region. Black Sea wheat exports have been strained in recent months as the conflict continues. Global wheat prices soared, and with the high weighting in the breakfast index, wheat was a major driver of the strong performance. In response to geopolitical tensions and persistent supply chain bottlenecks, food protectionism is returning to the forefront. For example, plans by India, the world’s largest sugar exporter, to restrict exports to prevent a spike in domestic prices could put additional pressure on global sugar supplies.
Finally, the S&P GSCI Dynamic Roll Breakfast (OJ 5% Capped) uses a flexible monthly term roll strategy designed to mitigate the negative impact of the shift to contango and potentially limit exposure to commodity market volatility. With its global focus, this new thematic index demonstrates our ongoing efforts to provide the public with replicable and investable commodity-based benchmarks.
Editor’s note: The summary bullet points for this article were chosen by the Seeking Alpha editors.