This new inflation shock comes at a time when global markets are still very nervous due to the turmoil associated with the pandemic. Price changes have affected commodity prices in recent days and could flow through higher costs at groceries and restaurants soon.
Grocery manufacturers are concerned that while the vast majority of ingredients and materials for American products are sourced domestically, the economic impacts of Russia’s invasion of Ukraine will be global, according to Katie Dennis, vice president of communications and research for the industry organization, Consumer Brands. organisation.
We are already seeing a spike in energy prices and a sharp rise in commodity futures contracts for wheat and corn. This will raise concern when manufacturing and shipping costs for goods continue to hit record highs and consumer demand remains above levels not seen since March 2020. “There is no slowdown in the system, which makes disruption of weathering significantly more difficult.”
The president of the Association of American Bakers, Rob Mackie, said consumers will start to see higher prices in anything that contains grains — wheat, corn, oats, barley, rye — because grain markets are “all tied together.” That could mean rising prices for bread, beer, grain and animal feed, among other things, affecting products worth billions of dollars.
“In a situation where the entire supply chain is already stressed, then [the conflict] After more than two weeks pass, you will start to see an effect in food prices,” he predicted.
Prices of major food commodities hit their highest level in nearly a decade on Friday. The Chicago Board of Trade’s March wheat contract, the global benchmark, rose to its highest level since 2012, with corn and soybeans also rising.
There are a number of factors that are driving prices up so quickly. The Russian attack has endangered shipping in the Black Sea region, as much of the region’s wheat shipments are exported. Russian attacks can Disruption of Ukrainian farmers’ ability to plant and harvest crops in 2022.
Michael Swanson, chief agricultural economist at Wells Fargo, said this week’s events were “evidence that this is going to be a multi-year issue”. “I suppose Ukrainian crops will not be grown, or will not be grown anywhere near what they normally grow. Russian crops will be grown but will be banned in many markets. This is not something that will be resolved in weeks or months.”
Ukraine is the world’s fourth largest exporter of both corn and wheat. It is also the world’s largest exporter of sunflower seed oil, an important component of the world’s vegetable oil supply. Russia and Ukraine together provide 29 percent of total wheat exports and 75 percent of global exports of sunflower oil, said Kelly Gogari, senior research analyst at Gro-Intelligence, an agricultural data platform.
Black Sea sunflower oil futures are up 11 percent so far this year — amid a global shortage of vegetable oils. Gujari said the loss of Ukrainian and Russian sunflower oil will lead to higher prices for soybean oil, palm oil and other vegetable oils, at a time when the United States is pushing to use vegetable oils in cleaner biofuels.
“There will be disruption; there is already a blockade of the Black Sea ports,” she said. “In the near term, this should have an impact on wheat shipments in the EU, and then it will have an impact on the United States.”
Russia is a major global player in natural gas, a major input to fertilizer production. Higher gas prices, and reduced supplies, will increase fertilizer prices. Russia is one of the largest exporters of the three major groups of fertilizers (nitrogen, phosphorous and potassium). Physical reductions in supply can lead to fertilizer price inflation.
Because of the relationship between energy prices and agriculture, the conflict will affect agriculture and food supplies worldwide and contribute to farmers’ decisions about what and how much to grow.
“This is heading towards a supply crunch that will be difficult to resolve,” said Todd Holtman, chief grain market analyst for agricultural data service DTN. Corn is a particularly fertilizer intensive crop. High fertilizer prices mean that American corn farmers, who grow the crop largely to feed animals, will struggle to turn a profit.
“This year with new high fertilizer prices, I’m looking at an additional $200 per acre cost to grow corn,” he said. In 2021, the cost of planting an acre was approximately $700, and this year the football field is $900 an acre. This will be an additional cost for row crop farmers as well as ranchers, forage breeders and dairy farmers.”
These higher costs will, in turn, pass to restaurants, retailers and eventually consumers.
Rising animal feed costs also have a potential impact on the supply of beef and pork, Holtmann said, at a time when demand remains high and supply has already dwindled due to issues such as last summer’s drought, and an increase in viral pig diseases such as reproductive and respiratory diseases in pigs. syndrome, and even bottlenecks in meat processing facilities at the start of the epidemic that left some cattle and pig farmers with no place to slaughter their animals. Choking has caused major meat companies to pay less per animal to ranchers, which in turn has caused many of them to cut back their herds.
Kyle Holland, a pricing analyst covering oilseeds and grains at Mintech, who analyzes food commodity price data, said the main concern for many economists right now is that a prolonged conflict between Russia and Ukraine would alter trade flows.
“If you can’t buy from Ukraine and Russia, where do you go to get supplies? We don’t really know the answer,” he said. “If Russia closes ports and there are sanctions on the most commonly exported Russian goods, that could, for example, to create a situation where Russian wheat is not imported. So where do people expect the import from? Fears are being inflamed as we stab in the dark a little because of how quickly this has happened.”
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