Iran conflict commodity prices summary
- Food prices rose after war but impacts remain seasonally limited
- Commodities such as vegetable oils saw biggest gains as substitutes for crude
- Soybean oil futures hit two-year highs tracking rising oil prices
- Grains and oilseeds later decoupled from crude limiting price spikes
- Energy and fertiliser volatility threatens food security if conflict persists
The conflict in Iran is constantly changing. Roughly a week ago, it looked as if the Strait of Hormuz, a key chokepoint for international fuel and fertiliser trade which Iran has restricted since soon after the war began, would be opened.
Now, the situation has only got worse for global trade. Not only is Iran still restricting passage through the Strait, but the US is blockading access to Iran’s ports as well.
Because of the restricted access to fuel and fertiliser, two vital inputs for the food industry, commodity prices have, unsurprisingly, been affected. But how much? And which have felt the effects of the war most keenly?
How have food prices been affected?
Food prices have increased since the start of the war, explains Stephen Butler, CCO and co-founder of AI commodity price prediction platform ChAI.
However, this has been in part limited by the fact that we are moving into the spring planting and growing seasons.
Furthermore, he points out, conflicts often have a lagging effect on food prices, meaning that we may start to see the results more clearly in the future.
Fertiliser shortages do have the potential to drive up food prices further. As a major agricultural input, its reduction could affect crop yields.
Vegetable oil prices high due to role as potential substitute
The most significant food commodities affected have been those which have the potential to be used as a direct substitute for crude oil, explains ChAI’s Butler, such as vegetable oil.
Commodities linked to biofuel, such as corn, sugar, palm oil, and soybean oil, have seen significant price increases since the start of the conflict.
Soybean oil in particular was impacted significantly, driven up by rising crude oil prices, says Tosin Jack, director of market reporting at Expana.
Soybean oil is positively correlated with crude oil, meaning that the two commodities tend to move in the same direction. Higher crude oil prices drive demand for soy-based fuel. In fact, Chicago soybean oil futures reached a two-year high at the start of the conflict.
However, says Benoît Fayaud, senior manager for grains and oilseeds analysis at Expana, since the conflict began, prices of grains and oilseeds have somewhat decoupled from crude oil.
Meanwhile, soft food commodities, rather than grain-based, have seen less significant increases. These include coffee, cocoa, wheat, milk and dairy. These commodities are less energy-intensive to produce, says ChAI’s Butler.
Energy and fertiliser’s effect on food
The price of energy and fertiliser both have a substantial effect on the food sector, the latter as an agricultural input and the former, as in all industries, as the means by which it runs.
Even if food prices have seen relatively little impact from the war, continuously high energy and fertiliser prices have the potential to put food security at risk.
“The longer the situation persists, the more likely it is that infrastructure and supply chains critical to food production will be affected”, says ChAI’s Butler.
Oil and gas in particular remain deeply volatile because of the war, with price swings often “directly linked” to Trump’s social media posts.
And with the recent announcement that the US will begin blockading Iranian ports, oil and gas prices will likely go up even further.
