By Bill Knudson
U.S. and Israeli forces attacked Iran. This brief paper outlines the impact of the war on agricultural and input markets, particularly fertilizers, diesel, and interest rates. Commodity markets, especially corn and soybeans, and the price of food. General macroeconomic issues are also considered.
It is difficult to determine when the war will end. Prediction markets indicate that the greatest probability is that the war will end before June 30. The longer the war continues, the greater the impact on agricultural markets. A short war with a quick resumption of trade in the region will minimize the impacts of the war.
While the Strait of Hormuz is a major thoroughfare of agricultural products, petroleum, and fertilizers, Red Sea ports in Saudi Arabia have also been impacted by Iranian attacks (Werz). Also, oil producing and refining facilities are being attacked. This will make it more difficult for the global economy to recover from the war.
The war has increased the cost of farming. Fertilizer and diesel prices have increased due the region’s importance as an oil and fertilizer producer. Crop prices have also increased somewhat, but in the long term, there is somewhat more uncertainty as to the long term impact on agricultural prices. The potential loss of export markets could reduce the price of U.S. agricultural commodities. Higher input costs improve the profitability of soybeans relative to corn.
Food prices will also increase. This will be primarily due to higher oil and diesel prices driving up transportation costs throughout the food supply chain. Higher oil prices will be felt throughout the economy and drive up inflation. This will further impact the farm sector by keeping interest rates elevated.
Source : msu.edu