Market Morsel: Should a wheat cartel be set up?
Agricultural and wide commodity markets are going to be interesting this year. As much as there will be the usual fundamental factors like supply and demand, as we have seen in recent years, the murky aspects of government interference will be another driver.
In general terms, governments should take a laissez-faire approach to markets. They should stay out of them.
One of the recent significant interventions has been OPEC (Organization of Petroleum Exporting Countries). These 13 countries are a who’s who of oil exporters, and many with questionable democracies (see map below)
OPEC is a cartel, and as a collective of nations who are major oil exporters, they are able to set the direction of the oil price by changing production levels. When production is reduced, the price increases.
The oil price has been falling, and the OPEC countries have decided to cut production by 1.16m barrels today.
This is going to have an effect on products which require oil (or the wider energy complex). However, we have seen a strong trend of grain and oilseed prices following crude oil. I have wrote about some of the reasons behind this here.
So whilst we are looking at drought conditions in the USA as a bullish factor and the continuing war in Ukraine as bullish, we also have the crude oil industry giving us another element. It’s going to be an exciting year.
Maybe some of the wheat-exporting nations should set up a cartel……..Just kidding, or am I?