From Coffee to Corn, Global Commodities Market Heating Up Again

The global commodities market—from coffee to corn to crude—is heating up again. This could spell bad news for public policymakers and consumers in the inflation fight.

Coffee has surged about 13 percent over the last week, rising to a near three-month high of $2.40 per pound on the U.S. ICE Futures Exchange. Year to date, the agricultural commodity is up 6 percent.

Investors are concerned that drought conditions in Brazil could reduce coffee yields and impact international supplies. In Minas Gerais, which produces nearly a third of the nation’s arabica crop, there has been no rain over the last week. Weather experts warn that below-average rainfall could linger for the rest of 2022.

Other key coffee-growing markets have struggled to offset the potential decline in Brazil. Vietnam’s coffee exports, for example, tumbled 17.1 percent, to 113,852 tons, while Colombia’s production dropped 22 percent, to 944,000 bags.

Shortage worries have sent corn prices nearly 7 percent higher over the last week, lifting their year-to-date rally to above 10 percent.

Weather challenges in the Northern Hemisphere have weighed on the commodities market, including corn. Severe droughts in the United States, Europe, and China are adding to price pressures.

According to the U.S. Department of Agriculture (USDA), 55 percent of the domestic corn crop was rated in good-to-excellent condition (pdf). This is down 5 percent from the same time a year ago.

Heat and drought could diminish yields for many crops, such as soybeans and wheat, in the next USDA agricultural update, says Phil Flynn, author of The Energy Report.

“This comes at a time when the world looked to the U.S. farmer to provide a buffer to offset the risk of supply loss from war-challenged Russia and Ukraine,” he wrote.

Overall, investment funds that concentrate on agriculture have seen notable increases. Over the last month, for example, the Invesco DB Agriculture Fund, which maintains exposure in coffee, corn, soybean, and sugar futures, has advanced more than 5 percent.

Could U.S. Crude Touch $100 Again?

West Texas Intermediate (WTI) crude oil prices have jumped nearly 5 percent in the last week, climbing above $94 a barrel on the New York Mercantile Exchange (NYMEX). Brent, the international benchmark for oil prices, topped $100 on London’s ICE Futures Exchange.

Despite global demand concerns erasing post-invasion oil gains, supply worries have revived crude prices.

Abdulaziz bin Salman al Saud, Saudi Arabia’s energy minister, hinted that OPEC+ could cut output to support prices as the paper and physical oil markets had become “disconnected” and “schizophrenic.” OPEC President Bruno Jean-Richard Itoua backed the potential reduction, telling The Wall Street Journal that the alliance could choose to pump less.

Market analysts had anticipated OPEC would consider this move following its 2023 outlook that forecasts slower demand amid a global economic slowdown.

But any OPEC decision to lower output might depend on the geopolitical situation and a nuclear deal between Iran and the West. If a new nuclear agreement is resuscitated, Tehran will inject global energy markets with an estimated 1.1 million barrels per day.

Meanwhile, the Energy Information Administration (EIA) reported its second straight week of a U.S. supply drawdown. In the week ended Aug. 19, domestic crude inventories declined by 3.282 million barrels, higher than the market estimate of a 933,000-barrel decrease.

Gasoline stocks slipped by 27,000 barrels, while production tumbled by 536,000 barrels. Demand fell to 8.434 million barrels, down from 9.348 million barrels in the previous week.

Natural gas prices touched $10 per million British thermal units (Btu) in intraday trading this week for the first time in 14 years. The so-called bridge fuel is now firmly above $9 on the NYMEX, with investors taking profits.

U.S. supplies have been holding steady this summer, climbing another 60 billion cubic feet last week, according to the EIA’s weekly storage report. However, EIA data also confirmed that domestic electricity generation from natural gas reached an all-time high in the middle of July. As a result, demand will keep supply levels tight.

The global commodities market is soaring again, potentially keeping the Consumer Price Index (CPI) elevated for the remainder of 2022. But the White House is confident inflation will ease to 2.8 percent next year (pdf). The global financial markets might challenge this level of optimism.

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