Market Overview
Conflict in the Middle East
The war between the US/Israel and Iran has caused major volatility for global markets.
In response to the missile strikes, Iran has blocked the Strait of Hormuz which is regarded as one of the busiest oil shipping channels in the world.
Around 20% of the worlds oil passes through the strait and the war has sent global prices soaring.
Before the war began, roughly 100 – 135 vessels passed through the strait each day. Since the 2nd March, around 90 ships, including 16 Oil Tankers have managed to pass through the strait. This sudden decrease in shipments has caused a backlog of a variety materials.
The knock on effect has seen energy prices soar, freight rates rise, an increase in demand for Biofuel and shippers unable to obtain insurance for their vessels.
These factors and the inability to obtain raw materials is what is driving global markets.
Globally, wheat, soya and rapeseed remain well supplied.
Global wheat production remains at record levels with the USDA increasing production to 842MT. The UK could see a wheat crop of up to 13.5MT depending on yields.
Global Maize production has been increased to 1297MT. However demand is still projected to outstrip production at 1300MT.
With oil prices rising, more demand will focus on biofuels which will increase demand on products such as maize and also soya/rapeseed.
Global soybean production is till due to hit record levels, despite the USDA cutting production back to 427MT. Brazil, Argentina and the US are all likely to produce large crops this year.
Rapemeal prices remain firm due to the continued closure of Erith which usually produces 50kt per month. When resolved we could see prices ease, especially with large EU and Canadian rapeseed sowings for harvest 26.
Fertiliser prices have also firmed considerably on the back of the closure of the Strait of Hormuz. Between a quarter to a third of the global trade in raw materials for fertiliser, pass through the straight. We have seen a 15% – 20% rise in fertiliser prices since the start of March.
In summary, the ongoing warfare and disruption seen in the Middle East is likely to cause major volatility to global markets. Freight rates, increased energy costs and biofuel demand will be key drivers for raw material prices going forward. Weaker currency will also be a factor. The big question is how long will this conflict last?
