War hits oil, grain markets Fed Reserve Bank reports on impact By Tom C. Doran
AGRINEWS PUBLICATIONS
KANSAS CITY, Mo. — Russia’s invasion of Ukraine has had swift and substantial effects on commodity markets that could be long-lasting, according to Federal Reserve Bank researchers. Federal Reserve Bank of Kansas City researchers Cortney Cowley, senior economist; David Rodziewicz, senior economist specialist; and Thomas R. Cook, data scientist, released their findings May 23. “Disruptions associated with the invasion have contributed to increases in commodity prices, which could support commodity-producing regions and businesses. However, higher prices for agricultural inputs,
energy and food have created additional challenges for net-importing regions, supply chains and consumers,” the researchers stated. The report was issued following the U.S. Department of Agriculture’s world supply and demand estimates that included a look at the potential impact of war in Ukraine to production and trade. USDA reduced Ukraine corn exports by 550 million bushels. Ukrainian wheat production is forecast at 21.5 million tons in 2022-2023, 11.5 million lower than last year due to the ongoing war. Ukraine’s wheat export forecast is 10 million tons, down sharply from last year’s 19 million tons on reduced production and significant logistical constraints for exports. Here are highlights of the research. Historical monthly oil, wheat price movements: The average price of oil increased 18%
from February to March, which was one of the more significant monthly increases on record. The surge in the price of wheat was perhaps even more historically significant. Wheat prices increased 29% in March, which was among the highest price increases over the past century. Other price escalations of this magnitude had not occurred since the oil embargo and Russian grain deal of the 1970s or the Dust Bowl of the 1930s. Oil, farm production expenses: Although costs associated with extracting oil rose sharply in 2021, the pace of increase accelerated in 2022, rising almost 60% through the first quarter. Other costs associated with oil production, such as parts and equipment, well services and wages, were stagnant or declining in the previous four years, but rose in the first
quarter of 2022. Farm production expenses, which had already been on the rise, increased even more sharply in the first quarter. Most notably, fertilizer and diesel expenses rose 90% and 60%, respectively, from the previous year in February. Feed expenses also climbed 15% alongside higher prices for grains and oilseeds. Profit opportunities for U.S. producers: Although the costs of producing crude oil rose from $48 a barrel in 2020 to $62 a barrel in the first quarter of 2022, oil prices rose faster, creating wider profit margins for energy producers. Unlike in 2020, in the first months of 2022, the average price of oil was $95 a barrel., or 53% higher than the profitable price. Similarly, although production expenses for wheat farmers have increased, prices See WAR page 22 Ag Mag 21
