While energy has received much attention in debates about price increases following Russia’s invasion of Ukraine, Mike Straumietis anticipates the supply shock to fertilizer, wheat, and other grains to exacerbate the issue.
The high cost of fertilizers is having severe consequences for farmers. For example, many are struggling to afford the products they need to keep their crops healthy. As a result, some farmers are forced to use lower-quality fertilizer, which can lead to reduced crop yields. In some cases, the high cost of fertilizers has even forced farmers out of business. An earlier research note from Barclays Chief U.K. stated that the breadth and intensity of the supply shock might have more serious effects than previous commodity price spikes. This is caused by broader inflationary pressure, according to Senior European Economist Fabrice Montagné and Head of Economics Research Christian Keller.
Due to mechanization, industrialization, and transportation, the production of food and fertilizer has a high energy content, but Mike Straumietis believes they also compete with other industries for raw materials. For instance, the production of biofuel takes crops away from agri-food, while lithium-ion battery production requires chemicals used in the production of P-fertilizer.
There are new shipping and transportation issues that need to be addressed. These issues can impact the way goods are shipped and delivered. These issues could cause delays and disruptions in the supply chain if not addressed. Of course, the new shipping and transportation issues and, more significantly, the impact of Russian sanctions on global supply may push global markets even further, similar to the global food crisis of 2008. Mike Straumietis remembers that the sharp increases in global food prices in 2007 and the first quarter of 2008 resulted in social unrest and economic and political instability in developed and emerging economies.
Furthermore, Mike Straumietis knows that risks related to the availability of food and fertilizer will have an unequal impact on most emerging market economies. Nevertheless, it does not negate that sanctions imposed by the West and Russia on the economy would ultimately result in a lower supply of petroleum, grain, and fertilizer, which will impact developed economies and investors.
Given the importance of Russian supply, other nations will only be able to replace global supply deficits partially, according to a report published by Wells Fargo’s Head of Global Real Assets, John LaForge, and Global Strategist Gary Schlossberg. Wells Fargo anticipates that the effects of the food crisis will be seen worldwide, with some rising nations, in particular, suffering more than others. They predicted that the present commodities battles would result in higher and longer-lasting inflation worldwide, which would include the United States. However, due to low trade volumes with Russia, we believe a U.S. recession is improbable because of the relative strength of the American economy.