Weekly commodity wrap-up

Inflation, Our Biggest Threat?

Inflation was reported to continue rising this month at both retail (8.3%) and wholesale (11%) levels. These numbers confirm inflation is at its fastest pace in 40 years. Governments can print more money, but they can’t print food or other commodities. Though we have much to be grateful for, three topics, each troubling in their own right, are now contributing to inflation: disease, drought, and war.

Disease Causes Inflation

The COVID Pandemic has disrupted every aspect of our society with both inflationary and deflationary impacts, such as unemployment, followed by labor shortages, unfunded government spending, supply chain disruptions, and even hoarding of beef and toilet paper. COVID, or other pathogens, could return in new pandemic “waves” with a massive impact on commodity supply and demand. New lock-downs in China are worsening supply shortages and were cited by Fed Chairman Powel as aggravating inflation.

Drought Causes Inflation

The shortage of commodities due to natural disasters or weather can contribute to the rise in prices, with climate change as an overriding factor. The mega-drought in the US western states is a sad example. Our farmers continue to feel the devastation of the water shortage, and this week’s unprecedented increase in wildfires has emphasized the issue.

The largest wildfire ever in the U.S. has spread toward New Mexico resorts, causing further evacuations. That fire, now a “federal disaster,” is a harsh reminder that weather anomalies can—and have been—contributing to inflation by removing resources and creating demand. Fires, droughts, hurricanes, and arctic blasts are all depleting commodity supplies.

War Causes Inflation

In ancient and modern times, the worst inflation episodes have been associated with wars. The huge, sudden monetary expenditures needed to pay for the military and other economic disruption dwarfs the ability of governments to provide resources, so they resort to “printing” fiat currency. The demand for goods and subsequent shortages is exacerbated by shifting personnel and material away from commodity production toward the war effort. The invasion of Ukraine fits this scenario. The explosions in the price of crude oil, natural gas, wheat, and vegetable oils have clearly been caused by war-related threats to supply.

Since the invasion of Ukraine began in February of 2022, crude for June delivery has gone from $75.00 per barrel to $110, natural gas from $4.00 to $7.60 per 10,000 MMBtu, K.C. wheat from $8.50 to $12.75 per bushel, and soybean oil 64 cents to 84 cents per pound.

Opinions are solely the writer’s. Walt Breitinger is a commodity futures broker in Valparaiso, Ind. He can be reached at (800) 411-3888 or www.indianafutures.com. This is not a solicitation of any order to buy or sell any market.