Geopolitical tensions continue to influence grain markets as conflicts in both the Middle East and Eastern Europe create uncertainty for global energy and agricultural trade. Ag economist Frayne Olson says the latest developments in the Middle East could have indirect impacts on farmers through higher energy costs, including fertilizer, diesel fuel, natural gas, and propane.
While energy costs are one concern, Olson said geopolitical events can also influence grain prices through financial markets. He said investors often move money into commodity indexes during times of uncertainty, and because those indexes include grains alongside energy commodities, futures prices can move even when grain market fundamentals have not changed.
Olson said the next indicator for farmers to watch is crude oil. He said changes in oil prices will provide an early signal of how markets are reacting to the latest developments surrounding the Strait of Hormuz and whether the new shipping fee begins disrupting global energy supplies.
The war between Russia and Ukraine is creating another layer of uncertainty. Olson said recent Ukrainian attacks on Russian grain export infrastructure could slow shipments through the Black Sea, while hot weather in Europe has also damaged portions of that region’s corn crop. Together, those factors could provide additional support for both wheat and corn prices.
Olson said when multiple geopolitical events threaten global supply chains at the same time, markets typically begin building a risk premium into commodity prices. Combined with the weather uncertainty that always accompanies the middle of the growing season, he believes those geopolitical concerns could provide short-term support for grain markets.
While weather is still expected to be the primary driver of grain markets through the remainder of the growing season, Olson said global geopolitical developments will remain another key factor for farmers and traders to monitor.
