The Russian invasion of Ukraine has brought on a new set of economic conditions that are reshaping financial and commodity markets, said economists and market analysts of CoBank in a white paper.
For the rest of 2022, global growth will be slower, and most commodity prices higher than previously expected, the white paper said. Key agricultural inputs are in short supply, and energy prices are near multi-year highs despite the biggest ever release from the US strategic petroleum reserves.
Those factors are amplifying already high inflation, and the Fed is poised to let air out of the easy money balloon more quickly, the economists said. This will slow the US economy and increase 2023 recession risks meaningfully.
Businesses enduring higher commodity costs soon will face markedly higher interest rates as well, they said.
That all paints a mixed picture for CoBank customers, the paper said. Agricultural commodity prices have more or less kept pace with input cost hikes, incentivizing producers to expand their operations despite record high costs.
US grain production will be critical for supplying the world as Ukraine struggles to plant, harvest and ship its corn, wheat and sunflower seed.
Agricultural and power sectors are wrestling with higher natural gas prices, and crude oil supplies are at a 10-year low, the authors said.
The ripple effects likely will expand in two directions: higher persistent costs throughout the economy and greater incentives to transition away from fossil fuels, they said. Once again, amid a global crisis, US rural industries are doing what they need to do to keep the lights on, water flowing, communications powered and the world fed.
RUSSIA CAN’T UNWIND GLOBALIZATION
A month ago, BlackRock CEO Larry Fink set off a debate about whether the Ukraine war has ended globalization as we’ve known it for the past three decades or more, said Dan Kowalski, VP of CoBank Knowledge Exchange in the white paper. Basically, the argument was that deglobalization already had begun before the invasion and likely would increase as countries become more nationalist and insular.
However, “suggesting that Russia’s actions in Ukraine are the tipping point for a new world order seems to be an overreach,” Kowalski said. “Russia today accounts for a mere 1.7% of global GDP in dollar terms, limiting its clout to the energy sector.”
The war has forced many heads of state and business leaders to reassess their partnerships with Russia, he said. But neither nationalist leaders, nor COVID have diminished the need for global trade.
Supply chains are more complex than ever, and thus more vulnerable, but global trade set a record in 2021 at $28.5 trillion.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $140.00 to $147.00 per cwt, compared with last week’s range of $137.25 to $147.00. FOB dressed steers, and heifers went for $221.29 to $222.35 per cwt, versus $220.50 to $228.60.
The USDA choice cutout Wednesday was down $0.16 per cwt at $255.08, while select was down $0.17 at $242.18. The choice/select spread widened to $12.90 from $12.89 with 136 loads of fabricated product and 49 loads of trimmings and grinds sold into the spot market.
The USDA reported that basis bids for corn from feeders in the Southern Plains were unchanged at $1.55 to $1.65 a bushel over the Jul futures and for southwest Kansas were steady at even the Jul, which settled at $7.88 1/2 a bushel, up $0.13 1/4.
The CME Feeder Cattle Index for the seven days ended Tuesday was $156.24 per cwt down $0.09. This compares with Wednesday’s May contract settlement of $158.15, down $0.77.