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Blog: Accelerating Food Inflation (4/10/22)

Using multiple measures, food inflation continued to rise sharply. The war in Ukraine has threatened the production of wheat, corn and vegetable oil, dramatically increasing the costs of the inputs needed to grow these crops. Fuel, fertilizer, equipment costs and availability have ensured that supply issues will continue for many months, if not years. Weather issues, including the drought in Ukraine and the mega-drought in the western United States, have compounded the threats. There is talk of disastrous consequences, perhaps even famine, in dozens of countries, like what happened during the financial crises.

Blooming Futures

American farmers have suddenly reacted to the shortage of sunflower oil exports from Ukraine with plans to double their acreage planted with sunflowers. Shampoos, bird food, baking and frying potato chips are some popular uses. Other edible oils also increased, such as rapeseed, soybean, corn and palm oil. So far, Kansas and North Dakota have had the most blooms of the beautiful yellow flowers. However, a belt leading from our Canadian border to Texas could expand as farmers move away from other crops in the hope of profiting from them.

Soybean oil for May delivery was trading at 75.10 cents a pound Friday afternoon, while May beans were at $16.72 a bushel. May corn was at $7.68 and May wheat at $10.40, unchanged from last Friday.

Egg prices soar as bird flu rises

Chicken is Ukraine’s main protein product. Due to power outages, supply chain disruptions and labor shortages, production has plummeted. Egg prices have been scrambled not just by war, but with a potentially bigger problem: bird flu. Farms in half of US states have reported the disease in the past two months. Bird flu has killed an estimated 23 million birds, and millions more have been culled to prevent further infection. This results in increased demand and higher prices for eggs, fish, pork and beef. Data from the CPI and USDA indicate shell egg prices have risen 52% since early February, when the first case of bird flu was discovered in Indiana. June hogs closed at $114.75 a pound while June cattle returned $134.00.

Interest rates will rise faster

To help reduce inflation, Federal Reserve Lael Brainard announced accelerated interest rate hikes and a faster decline in the Fed’s asset portfolio. Treasury bond futures and stock index futures fell mid-week when it was announced. June treasury futures traded at 143.00 midday Friday, while the June S&P traded at 4499, about 50 points lower on the week. June gold traded at $1,948 an ounce, while silver for May delivery fetched $24.85.

Opinions are solely those of the author. 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 a market order to buy or sell.