By Karl Setzer

 Trade is becoming increasingly concerned with rising food costs and what they may mean for consumer demand. World food inflation has been significant this year with costs increasing nearly 21 percent from a year ago. The suspension of wheat from the Black Sea will likely increase this number over the next several months, even if exports start to take place. This is especially the case on wheat as 30 percent of the world’s needs come from the Black Sea. We have seen several of the world’s other wheat producing countries limit exports which will further tighten the global supply.

Another food product being closely monitored is vegetable oil. World vegetable oil values have also rallied in response to the Ukraine war, but also from the shorter soybean crop in South America. This has driven the cost of vegetable oils to a point where some users are cutting back on consumption, including China, who is a leading importer. We are also starting to hear of some countries cutting back on their biofuel blend rates to ensure adequate food supplies. Even with this reduction to demand we will need to see much more for futures to correct from their highs, especially soy oil.

Rising energy costs remain a global concern, especially in the United States as we approach the summer driving season. The average price per gallon on gasoline in the United States has increased 79 cents per gallon in just the past week. This now has the average at $4.43 per gallon, a full $1.54 higher than last year at this time. The concern in the market over what this rising cost will mean on the economy is increasing, especially with all other expenses inflating as well.

Even though U.S. energy values remain at record high levels, demand has not eased. Gasoline consumption last week was the highest we have seen in the past month, averaging 9 million barrels per day. The greatest rally to the consumer has just hit the market though and there are thoughts this will finally start to ease usage. The real question is what will happen this summer if energy values remain elevated. It is quite likely summer travel will be affected this year, especially with other signs of inflation, mainly food.

Argentine officials have suspended the exports of soy meal and oil, which is not uncommon at the start of their export program. The Argentine government is in the process of raising their export tax on these products from the current 31 percent to 33 percent to protect their domestic supplies, especially with the added demand from the Black Sea export disruptions. Exports are normally halted in front of these tax rate changes to prevent the market from being flooded with sales.

China and the United States have two different opinions on what China’s corn and soybean imports will total this year. In the latest USDA WASDE report, China’s yearly corn imports were projected at 26 million metric tons (mmt) compared to China’s 20 mmt forecast. China claims their soybean imports will total 102 mmt this year though, which is well above the USDA forecast of 94 mmt. The USDA is basing its soybean import projection off recent demand and available world stocks which is why the number is lower. It is also unlikely China will buy an extended volume of soybeans at today’s levels for storage.

When it comes to global soy trade, more interest is falling on meal. Reports out of Ukraine indicate some of the country’s crush facilities have been damaged from the war and will be off-line for an extended period of time. Crushers in the European Union have recently halted some facilities as energy costs are too high for profitable processing. Meal demand is starting to shift to Argentina, which has caused basis values in that country to spike. It is now thought more demand may also come to the United States and further support our crush margins, even with elevated soybean values.

Trade is keeping a close eye on the upcoming Ukraine planting season. Spring fieldwork should be taking place in Ukraine at this time and the country’s government is urging farmers to move ahead with planting as usual. There are thoughts that any delay will cause a reduction in Ukrainian acres, especially on corn. Last year, Ukraine seeded 13.4 million acres of corn, but thoughts are we will see between 8-9 million this year due to input and energy shortages. If the conflict lasts another month, Ukraine corn acres could fall to just 5 million. Not only would this remove Ukraine from the export market, but it could lead to corn imports.

Over the past year we have seen an elevated use of wheat as a feed grain. This was partially from a short global corn crop but also from an abundance of low-quality wheat in the global market. In recent weeks we have seen wheat post a considerable rally, and values are now roughly $3.50 above corn. This is halting wheat feeding in many regions of the world, and will likely further restrict it when the Safrinha crop from Brazil starts making its way into the market this coming summer.

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