Israel and Gaza conflict key watchpoint for global trade: Grain market daily

Market commentary

• UK feed wheat futures (May-24) closed yesterday at £185.25/t, down £1.75/t on Monday’s close. New crop futures (Nov-24) closed at £199.95/t, down £1.05/t over the same period.
• Both the Paris and Chicago wheat market were pressured yesterday. Wheat markets were pressured by weak global demand and the on-going pressure in maize markets.
• EU soft wheat exports are estimated at 16.88 Mt for the 2023/24 season, up until 14 January 2024. This is down from 18.17 Mt a year earlier (European Commission).
• Paris rapeseed futures (May-24) closed yesterday at €427.25/t, gaining €2.25/t on Monday’s close. Rapeseed markets gained with old crop Chicago soyabeans which found support from the cut in the projected Brazilian crop. Though, general price direction remains bearish from a stronger US soyabean production and stockpiles.

Israel and Gaza conflict key watchpoint for global trade

The escalation of the Israel/Gaza conflict in the Middle East, with US/UK retaliation against Iran backed Houthi attacks on commercial shipping in the Red Sea, and the subsequent rerouting of commercial shipping, is likely to impact the UK over the coming weeks and months.

Around 12% of global trade is routed through the Suez canal (source: OECD). Rerouting this trade adds around ten days and associated additional costs to journeys, along with a potential knock on effect for turnaround times at UK and EU ports.

Shipping costs have a major inflationary impact, as seen during the Covid crisis. Shipping delays impact domestic inflation for imported goods, including oil and fertilisers. The risk here is that the escalation is prolonged, driving domestic inflation and delaying the expected interest rate cuts from the Bank of England. This could put pressure on both input costs and borrowing costs at the same time, as well as dampening both economic growth and consumer demand.

AHDB will be monitoring input markets in order to keep levy payers informed about this emerging issue, all updates will be available on the Economics and Analysis home page.

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