One of the main inflationary forces in 2021 has been the weather.
Wild weather around the world has taken its toll on commodity markets, pushing up the prices of everything from electricity and heat to homes and breakfast cereals.
Policymakers and investors have debated the effects of fiscal and monetary policy on inflation, but one of the main reasons for the rise in prices this year are factors over which neither lawmakers nor central banks can. do a lot. Prices for natural gas, lumber, corn, soybeans, wheat, and other building blocks of modern commerce have hit multi-year highs – in some cases record highs – due to fires, freezes, floods, droughts, hurricanes and some of the hottest temperatures on record.
The weather is always at stake in commodity markets. A freeze in Florida drives up orange juice futures. Chicago blizzard pushes up natural gas prices. A bumper harvest floods the market. But this year the weather was consistently extreme and often in a way that drove up commodity prices.
Low fuel and grain production due to a multi-year energy slump and trade war with China has paved the way for higher commodity prices. The pandemic has further disrupted production. From there, the weather took over. “The weather is probably the biggest factor driving prices up,” said Craig Turner, senior commodity broker at StoneX Financial Inc.
It all started in February when Texas froze. Winter storm Uri increased demand for natural gas for heating while clogging ice wells, dramatically reducing production in the region which needed fuel to stay warm.
Spot prices have skyrocketed across the country. At the main gas exchange hub in the United States, a pipeline junction in Louisiana known as the Henry Hub, the price hit a record high of $ 23.68 per million British thermal units. The cold has also damaged chemical factories on the Gulf Coast, which are not used to freezing temperatures, paving the way for shortages and higher prices for basic materials like PVC pipes and paint resins. .
In South America, the worst drought in decades has scorched growing areas, withering Brazil’s export corn crop and leaving the Paraná River too shallow for fully loaded boats to pass from within. Argentina to the Atlantic sea lanes. By mid-May, corn and soybean futures prices had reached their highest prices in several years.
Drought has hit North America, drying up hydropower in the West. A large hydroelectric power station in northern California had to be shut down completely when Lake Oroville fell below the water level needed to generate electricity. Natural gas and coal were burnt to cover the deficit, pushing up prices.
The hottest June on record in North America sent air conditioners buzzing and fuel prices soaring. Triple-digit temperatures have warped roads and killed people in Portland, Oregon, and Seattle. The glut of natural gas that had kept U.S. utility bills low for years evaporated as demand for electricity increased.
The heat dragged on into July, and commodity producers around the world struggled with destructive weather conditions and disasters.
Forest fires have broken out in the dry forests of the Pacific Northwest. In British Columbia, sawmills were suffocated by forests and customers, pushing up lumber prices that had just retreated from a historic rise that threatened the housing boom. (Lumber prices would rise again in November when flooding in British Columbia cut sawmills down).
When commodity broker Tommy Grisafi visited farms in North Dakota to assess the spring wheat crop, he found parched fields infested with grasshoppers that thrive in dry conditions. More than 1.2 million planted acres of spring wheat have never been harvested, and U.S. production has fallen 44% this year, according to data from the U.S. Department of Agriculture. A bushel of soft red spring wheat loved by bakers and pizza makers has doubled, reaching its highest price on the Minneapolis Grain Exchange since the 2008 planting season.
The Canadian prairie was also parched. A poor harvest resulted in record oat prices.
Flooding and a strained power grid by record high temperatures hampered tin makers in China, the world’s largest producer, leading to record prices for the metal, which is crucial for PCB manufacturing. .
Rivers overflowed into the German industrial corridor. Copper prices hovered around record highs when water swept through a facility owned by Aurubis AG,
a major producer and recycler of metals, forcing it to shut down for months.
In Brazil, the worst frost in a quarter of a century devastated the coffee crop and prices for arabica beans reached multi-year highs.
In August, Hurricane Ida hit the Louisiana coast, headlining the third most active storm season on record in the Atlantic. Almost all of the natural gas production in the Gulf of Mexico has been disconnected, resulting in higher prices not only for electricity and gas for heating and cooking, but also for fertilizers, cement. , steel and plastics, all of which can require a lot of gas to produce. Chemical makers along the coast, already struggling to keep up with demand, have been hammered.
Far upstream, in Cleveland, the painter Sherwin-Williams Co.
had to slow down production due to a lack of necessary resins, additives and solvents. The company warned investors that sales would suffer and said it was buying a supplier with factories in Oregon and South Carolina to avoid a repeat.
“We have looked at all possibilities to strengthen and further diversify our supply chain so that future natural disasters in the Gulf region have less impact for us,” said Managing Director John Morikis.
In October — the second hottest on record in North America — the heat began to weigh on prices.
Natural gas futures reached $ 6.31 on Oct. 5, the highest price since Frackers flooded the market with shale gas more than a decade ago. But as Americans’ windows remained open and their ovens turned off until November, stocks that had been burnt to beat the summer heat were replenished. In mid-December, stocks were 1% above the five-year average, and the price was dropping on every balmy fall day.
Write to Ryan Dezember at [email protected]
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