Market Morsel: Israel and Iran to help grain?

Market Morsel

The current conflict in the Middle East has been going on for almost a year now. Yesterday, the Hamas leader was assassinated in Iran whilst he was there as a guest of the Iranian government.

This may provoke a response from Iran against Israel. The conflict so far has been relatively limited, and the impact on grain markets is relatively limited. The biggest impact was on freight due to Houthi rebels attacking Red Sea shipping.

An escalation to include other nations in the region could have a larger impact on the grain market.

One of the impacts of a larger conflict in the Middle East is the impact on energy pricing. The Middle East is responsible for about a third of the world’s crude oil production. If this production is impacted, it can have a huge impact on the world’s energy costs.

Other than higher fuel and energy costs, why does this impact farming?

The grain and oilseed markets tend to have a very strong correlation with crude oil. As crude oil rises, oilseeds and grains will tend to rise, and vice versa.

Many grains/oilseeds are used for biofuel purposes; therefore, they are a replacement for crude oil. The relationship between canola and wheat with crude oil can be seen in the charts below.

If the conflict becomes larger in the Middle East, then we can expect higher fuel pricing for our equipment, but there is a chance that we may see higher grain pricing for our outputs. Swings and roundabouts.