Commodity Insite: The war and Mother Nature

The Consumer Price Index, a gauge of inflation, hit a 40-year high last month, and most economists expected the same report this week to show an improvement. In fact, there was nary an economist or analyst that was not looking for some improvement and easing of inflation.

As it turned out, the CPI report showed a 8.3% annual pace last month, down from the March figure of 8.5%. The rub, however, is all the experts and pundits on Wall Street were looking for 8.1% gain. Thus, inflation remains poker hot.

But, yes, based on the CPI report, inflation around the United States cooled down in April, the first drop following eight straight months of faster and faster price increases. And the modest dip in inflation does suggest the worst of the price increases of the past year may have peaked out. Only time will tell.

However, from CBS News in an article entitled “Inflation slows for the first time in 9 months,” Robert Frick, a corporate economist at the Navy Federal Credit Union is quoted: “The peak of inflation may be behind us, but today’s CPI report points to a long, slow descent or maybe even a plateau around 8% until prices start to drop significantly.”

In April, the CPI report indicated food, shelter and new car prices increased. And though crude oil prices fell 10% from a month ago, gas prices at the pump rose to new all-time historic highs this week.

According to USA Today, “The average U.S. gas price hit a record high Tuesday — and then Wednesday, and again Thursday. Experts say these record-high prices won’t last forever, but drivers shouldn’t expect the pain at the pump to ease any time soon.

“The average price for regular gas in the U.S. reached $4.42 per gallon on Thursday, according to AAA. Diesel prices also hit a record $5.56 per gallon.”

In my opinion, the average American citizen worries mostly over the cost of gasoline and food prices.

They also worry over higher interest rates impacting their credit cards or mortgages that have a variable rate. And certainly they also worry about even higher interest rates to come.

Not only is inflation stubbornly high in the United States, but it is becoming entrenched into everyday life in other parts of the world, as well.

In other parts of the world the average household also worries more about food and gasoline prices and higher interest rates more than anything else.

And this week’s CPI report shows clearly that inflation is stubborn, not likely to retreat much in the period ahead and may be entrenched for some time to come.

The two main reasons food inflation — “stuff inflation,” so to speak — remains historically high is because of the war in Ukraine and the weather.

The war has slowed considerably Ukraine’s ability to export wheat and other grains. Ukraine is basically the breadbasket of Europe.

The war has been underway since Feb. 22, not quite 90 days ago. Should the war linger much longer, it will be more bullish yet regarding “stuff.”

Some are already claiming that the absence of Ukraine wheat from the global marketplace is the largest disruption of supplies since WWI, 108 years ago. To keep, “stuff inflation” from going higher yet, the war in Ukraine must end.

Regarding the weather, there are threatening issues across the globe. Planting progress of corn in the United States is the slowest since 2013.

The Grain Belt, Upper Midwest and Canada are experiencing wet and cold conditions keeping farmers out of the fields. When crops are planted after May 15, production suffers.

In fact, it was so wet and cold this week, the U.S. crops may not be planted before June 1. A bullish scenario.

Understand that ending supplies of wheat, corn and soybeans in the United States are razor thin. The marketplace will not tolerate short crops on top of historically tight supplies.

This week, a development to ponder is the price of Minneapolis spring wheat rose to a high for July futures of $13.35 a bushel, a level not seen since April 2008, when it hit a high of $13.88. But in February 2008, Minneapolis wheat kissed $25 a bushel, an all-time historic high.

Here is all I am saying: Inflation is poker hot and shows only subtle signs of ending based on this week’s CPI report. But when it comes to “stuff inflation,” food and energy, the key fundamentals keeping prices marching higher and higher is the war in Ukraine and the weather, aka Mother Nature.

Those fundamentals will not change anytime soon. The war is ongoing and Mother Nature is notoriously fickle.

The CPI report this week showed food inflation at 9%, the highest since 1981. To stem the rise with food inflation and the “stuff markets,” the war in Ukraine has to end and Mother Nature needs to behave herself — especially in the key growing months of July and August where the weather can make or break the corn and soybean markets.

Good luck with all that!