In the two weeks since the February 28 U.S. strikes on Iran, there have been jolts to the global economy. The most obvious adjustment for the majority of Americans will be at the gas pump as oil is manipulated and used as collateral. Beyond fuel, the current unrest in Iran has already started to punch agriculture in the gut in Idaho and across the country.
Gas:
The U.S. strikes on Iran and the resulting assassination of Iranian leader, Ayatollah Ali Khamenei, are having far-reaching impacts on the global wheat trade and right here at home on the farm in Idaho, too. Fuel prices have increased by more than 55 cents in the past month and more than 30 cents in the past week, according to AAA. Crude oil, which traded at $67 per barrel at the end of February is now sitting at $94 per barrel after reaching more than $110 per barrel over the past weekend. 20 million barrels of oil are set to pass through the Strait of Hormuz every day, and those shipments were disrupted when Iran closed the Strait after the initial attack.
Fertilizer:
Up to 30% of the fertilizer exported around the world travels through the Strait of Hormuz, including urea, ammonia, phosphates, and sulfur, a statistic reported by the International Food Policy Research Institute. Disruption in shipments of critical inputs are increasing production prices on the farm and creating market vulnerability. The American Farm Bureau sent a letter to the White House calling on President Trump to protect fertilizer shipments through the Strait of Hormuz and suspend countervailing duties on fertilizer imports. Low prices and tight margins will put significant pressure on farmers with input costs increasing from an already elevated starting point.
Interest:
Debates and divides within the Federal Reserve are sure to continue as officials weigh cutting interest rates and raising inflation. Anxiety over the memory of similar decisions in the 1970s, and the results that followed, will influence what The Fed decides to do about interest in the coming months.
Trade:
Commodity prices have been erratic, as commodities have been sold and traded as proxy for crude oil. Meanwhile, S&P Global is predicting a rise in demand in Southeast Asia for Australian wheat as the situation in Iran intensifies. Australia’s proximity to Southeast Asia, which will directly translate into freight costs and shipping reliability, could put U.S. wheat at an export disadvantage even in loyal markets. Panamax freight from Australia to Southeast Asia jumped $2-$4/mt week over week for dry bult freight rates, but steeper increases were seen from the Pacific Northwest. However, deliveries of U.S. wheat into Southeast Asia have remained steady and many purchasers are willing to wait and see how the situation plays out.