Wheat and other US food prices could rise due to Russian invasion of Ukraine

This new inflationary shock comes at a time when global markets remain extremely tight due to pandemic-related disruptions. Price changes have impacted commodity prices in recent days and could soon result in higher costs at grocery stores and restaurants.

Food manufacturers are concerned that while the vast majority of ingredients and materials in U.S. products are domestically sourced, the economic effects of Russia’s invasion of Ukraine will be global, according to Katie Denis, vice president of communications and research for the Consumer Brands industry organization. Association.

“We are already seeing rising energy prices and a surge in commodity futures for wheat and corn. This is going to cause concern when the costs of manufacturing and shipping goods continue to set record highs and consumer demand continues to be above levels not seen since March 2020,” she said. “There is no slack in the system, which makes weather disruptions much more difficult.”

American Bakers Association president Robb MacKie said consumers will start to see prices rise for anything that contains grains – wheat, corn, oats, barley, rye – because grain markets “are all linked each other”. This could mean higher prices for bread, beer, grain and animal feed, among other things, impacting billions of dollars worth of products.

“In a situation where the entire supply chain is already under strain, if [the conflict] lasts more than a few weeks, you will start to see an impact on food prices,” he predicted.

Prices for major food commodities rose to their highest level in nearly a decade on Friday. The Chicago Board of Trade Market wheat contract, the global benchmark, hit its highest level since 2012, with corn and soybean prices also soaring.

There are a number of factors pushing prices up so quickly. Russia’s attack has jeopardized shipping in the Black Sea region, where much of the region’s wheat shipments are exported. And the Russian attacks could disrupt the ability of Ukrainian farmers to plant and harvest in 2022.

This week’s events “are proof that this will be a multi-year problem,” said Michael Swanson, Wells Fargo’s chief agricultural economist. “I guess Ukrainian crops will not be planted, or far from what they usually plant. And Russian crops will be sown but will be embargoed in many markets. It is not something that will be solved in a few weeks or months.

Ukraine is the world’s fourth largest exporter of corn and wheat. It is also the world’s largest exporter of sunflower oil, an important component of the world’s vegetable oil supply. Together, Russia and Ukraine supply 29% of all wheat exports and 75% of global sunflower oil exports, said Kelly Goughary, senior research analyst Gro-Intelligence, an agricultural data platform.

Black Sea sunflower oil futures are up 11% so far this year amid a global shortage of vegetable oils. Goughary said a loss of Ukrainian and Russian sunflower oil will drive up prices for soybean oil, palm oil and other vegetable oils, at a time when the United States is pushing to use vegetable oils into cleaner-burning biofuels.

“There will be a disturbance; there is already a blockade on the Black Sea ports,” she said. “In the short term, this should impact European Union wheat shipments, and then it will impact the United States”

Russia is a key global player in the field of natural gas, a major input for the production of fertilizers. Rising gasoline prices and supply cuts will further increase fertilizer prices. Russia is one of the largest exporters of the three main groups of fertilizers (nitrogen, phosphorus and potassium). Physical reductions in supply could further inflate fertilizer prices.

Due to the relationship between energy prices and agricultural prices, the conflict will impact agriculture and food supplies around the world and contribute to farmers’ decisions on what to grow and in what measure.

“It’s heading for a supply shortage that will be difficult to solve,” said Todd Hultman, senior grain market analyst for agricultural data service DTN. Corn is a particularly fertilizer-intensive crop. Rising fertilizer prices mean U.S. corn farmers, who largely grow the crop to feed animals, will struggle to be profitable.

“This year, with these new high fertilizer prices, I’m looking at an additional cost of $200 per acre for growing corn,” he said. “In 2021 it would take around $700 to farm an acre, this year a ballpark is $900 per acre. This will be an added cost to row crop growers as well as ranchers, feedlots and dairy producers.

These higher costs will in turn be passed on to restaurants, retailers and ultimately consumers.

Hultman said rising feed costs also have the potential impact of pinching the supply of beef and pork, at a time when demand remains high and supply has already fallen due to issues such as last summer’s drought, an increase in swine viral diseases such as swine breeding and swine respiration. syndrome, and even the bottlenecks at meat processing facilities early in the pandemic that left some cattle and hog producers with no place to have their animals slaughtered. The bottleneck has caused big meat companies to pay farmers less per animal, causing many to reduce their herds.

A major concern for many economists right now is that a protracted dispute between Russia and Ukraine would serve to alter trade flows, said Kyle Holland, a price analyst covering oilseeds and grains at Mintec, which analyzes food price data.

“If you can’t buy in Ukraine and Russia, where do you go to get your supplies? We don’t really know the answer,” he said. “If Russia blocks ports and there are sanctions on the products most commonly exported by Russia, this could, for example, create a situation where Russian wheat is not importable. So where do people expect to import from? Fears are stoked and we stab in the dark a bit because of the speed at which this happened.

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