Climate Change, Geopolitics Make Commodities More Expensive
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Commodity markets are facing a bout of volatility. The price of wheat, oil, and even orange juice is surging, showing the tangible impact extreme weather and geopolitical unrest can have on the markets.
Weathering the Storm
Climate change has taken its toll on the commodities market. Cocoa and orange juice futures have reached dramatic highs due to weather conditions, including a lack of rain in cocoa-producing Ghana and Ivory Coast, and hurricanes battering orange-growing Florida.
Other commodities, such as wheat and oil, have been hit by geopolitical tensions.
The price of wheat futures spiked last year on fears the Russia-Ukraine war would limit supply from Europe.
Meanwhile, conflicts in Ukraine as well as the Middle East also pushed up oil prices, which have come down again on fears over faltering global demand for energy.
The Costly Cascade
The thing about commodity markets is that unlike turbulence in company shares, they affect your household budget in a different way. If oil prices skyrocket, and it’s much costlier to fuel your car, you’ll know. Similarly, if the price of groceries goes up, and availability becomes limited because of global supply shortages, you will notice on your trips to the supermarket.
The ripple effect of raw material costs on your wallet is often delayed. Businesses may absorb the higher costs to sustain demand, but that’s a balancing act that typically either leads to shrinking profit margins or operational cost-cutting. The true impact of these market shifts has yet to unfold.
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