How the war in Ukraine is driving up inflation at US farms, supermarkets and retailers


Russia’s invasion of Ukraine has set the stage for consumer prices to rise faster as the chaos of war drives up the costs of manufacturing food, consumer goods and machinery in remote locations of the battlefield.

The conflict is straining an already strained global supply chain, and its economic impact will likely be felt in households around the world, in supermarkets, retailers and at the gas pump. While higher costs will take time to trickle down from producers to consumers, executives and analysts expect the fallout from the war to worsen inflation already fueled by shortages of goods and workers.

“It seems to eclipse everything now and reverse the improvement we were seeing,” said Kathy Bostjancic, chief U.S. economist at Oxford Economics.

The short-term consequences were serious. Grain markets recently hit a 14-year high in anticipation of a reduced harvest in Ukraine, which would increase the costs of feeding the world’s livestock and poultry.

Aluminum prices rose in anticipation of sanctions against Russia, a major supplier of the metal used in soda cans, planes and construction, as well as fears that Moscow could halt exports.

Crude oil prices rose 25% last week to over $118 a barrel, the highest level since 2013. Gas prices rose an average of 43.7 cents per gallon in the United States, according to GasBuddy price tracker data. On Sunday, the national average was $4.02 a gallon, according to GasBuddy.

War costs

Economic fallout from Russia’s war on Ukraine drives up prices worldwide

Percentage change in prices from February 1

On Friday, Russia, one of the world’s biggest suppliers of fertilizers such as potash and nitrogen, said it could suspend exports. Farmers and consumers will bear the cost of any prolonged shortage.

Ingka Group, which owns and operates the stores of furniture giant IKEA, said on Thursday prices would rise more than expected this year after warning that the war in Ukraine was causing severe supply chain disruption. IKEA said its global prices would rise by around 12%, compared to earlier estimates of 9%.

Some analysts and business executives warn that it is too early to know exactly what the long-term effects of the war will be on the global economy, and not everyone thinks the conflict in Ukraine will have a major impact on the chains. supply. Businesses have bounced back from global conflicts in the past and can mitigate the effects by finding alternative suppliers elsewhere.

But the invasion of Ukraine has already slowed down the journey of goods traveling by various means. Many Western shipping lines avoid Russian ports, a major rail line between Asia and Europe is less used, much of the Black Sea remains off-limits, and many air cargo flights are banned or avoid airspace Russian, a key transit of goods between Europe and Asia. Shipping and air freight rates have increased.

Rising energy and food prices are just the most obvious pressure points for consumers. “Now that we’re seeing increases for other commodities, like aluminum, palladium, copper,” Ms. Bostjancic said, “that’s also going to affect consumer prices to some degree.”

Workers tending to steel furnaces at the ArcelorMittal metals plant in Kryvyi Rih, Ukraine, in 2019.


Photo:

Vincent Mundy/Bloomberg News

Ukrainian industries, including auto parts makers, breweries and an alumina refinery, halted production. A giant steel mill owned by ArcelorMittal SA, one of the country’s biggest industrial companies, closed on Thursday. That and other plant closures in the country, along with Russia’s difficulty getting some of its steel out, are expected to accelerate already rising steel prices.

Companies that use stainless steel and other heat- and corrosion-resistant nickel-containing steel alloys say they are preparing for higher prices and the possibility of a disruption in shipments of nickel. nickel from Russia, a major exporter.

Nickel is also used in lithium-ion batteries that power consumer electronics and electric vehicles. The price of nickel rose to $29,800 per metric ton, a 14-year high, up about 19% on the London Metal Exchange since fighting began in Ukraine.

Small auto parts factories in Ukraine that supply the wider auto industry have closed, while sanctions and cut trade routes are hampering auto-related shipments to and from Russia.

Quality tests at the Renault automobile plant in Moscow.


Photo:

Stanislav Krasilnikov/Zuma Press

From farm to table

Ukrainian farmers are expected to sow their spring crops soon. Yet even if the fighting stops, they may not have enough fertilizer and pesticides. Agriculture industry leaders are warning of lower yields in Ukraine, which normally has some of the most productive fields in the world.

“Depending on the crop you are considering, this could have quite serious impacts from the first growing season,” said Svein Tore Holsether, managing director of Norway-based Yara International. LIKE

A, one of the largest fertilizer manufacturers in the world. “Yields could drop 50%.”

Ukraine accounts for 8% and 13% of global wheat and corn exports, respectively, according to data from the US Department of Agriculture. “For some parts of the world, that means more expensive food,” Holsether said. “For other parts of the world, that means access to food, and it’s a matter of life and death.”

Over the past month, wheat futures have hit a 14-year high and are up more than 40% over the past week. Corn and soybean prices over the past month have risen about 21% and 15%, respectively.

Higher commodity costs are likely to further inflate the prices of staples such as grains and cooking oil, as well as beef and other meats, as producers rely heavily on grains to feed livestock and poultry.

A combine harvester harvesting wheat in 2020 near the village of Hrebeni in the Kyiv region of Ukraine


Photo:

valentyn ogirenko/Reuters

Rising grain and corn costs take away some of the hopes that inflation may plateau in the second half of the year. These agricultural products are used in almost all food products, said Ben Bienvenu, food and agribusiness research analyst at Stephens Inc.

Hormel Foods Corp.

, the owner of food brands such as Spam canned meat and Skippy peanut butter, said he expects commodity prices to rise due to the war in Ukraine. “There will be disruptions now and later,” said the company’s chief financial officer, Jacinth Smiley.

James Halverson, a breeder in Beulah, Wyo., and executive director of the South Dakota Stockgrowers Association, said feed costs have jumped over the past week, making it more expensive for breeders, including himself. , keep livestock and negotiate better prices. meat packers.

If the cost of grain remains high over the next few months, it will reduce its bottom line, he said, and customers will pay more for meat at the grocery store.

“We saw the grain coming,” he said. “It’s the number one cost of livestock feed.”

Soil supplements

The rise in food prices is linked to the rise in the price of natural gas, one of the main ingredients of nitrogen fertilizers. Ken Seitz, acting chief executive of fertilizer giant Nutrien ltd.

said rising gas prices could lead to plant closures in Europe.

Mounds of phosphate fertilizer granules in a storage warehouse at the PhosAgro-Cherepovets fertilizer plant in Cherepovets, Russia, last year.


Photo:

Andrei Rudakov/Bloomberg News

The transport of fertilizers, mainly by train and boat, has been difficult since the invasion of Ukraine. Several major shipping companies have temporarily suspended their services to Russian ports.

Fertilizer supplies were already tight and prices hit record highs. This adds pressure on farmers, who pay significantly more for fuel, weed killing chemicals, seeds and seasonal labour.

If fertilizer supplies run out or become too expensive, some farmers may shift acres to less fertilizer-intensive crops like soybeans. Others could reduce fertilizers, which could reduce harvests, analysts say.

Nutrien, the Canada-based company, could produce more potassium fertilizer if global supply issues persist, Seitz said. But his business could end up with unsold quantities if Belarusian and Russian suppliers return to the market.

Farmers are wringing their hands over the supplies they’ll need for spring planting, said Chris Edgington, president of the National Corn Growers Association and an Iowa farmer. “The American farmer is going to have a crop in the ground,” he said. “What it will look like, I can’t tell you. »

Randy Stephens, general manager of SureGrow Agricultural Products Inc., has a plan to fill orders for his approximately 3,000 customers in Texas. The CEO of the chemical and fertilizer company in Comanche, Texas, said over the next three months it will call at no less than 15 ports from Houston to Corpus Christi, seeking shipments required.

Even if he finds enough supply, he said, “I think we can run out very quickly.”

The grain loading facility in the TransInvestService port on the Black Sea in Ukraine.


Photo:

Christopher Occhicone for The Wall Street Journal

Write to Patrick Thomas at [email protected] and Alistair MacDonald at [email protected]

Copyright ©2022 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8

Previous Governor Lamont marks International Open Data Day 2022
Next 9th Gear at TradeTech FX USA 2022: Ending Settlement Risk with Blockchain