Meals Costs Preserve Climbing. The Ache Received’t Finish Quickly, Both.

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Food was among the top commodities gainers in April, including wheat, soybeans and corn.

Stefani Reynolds/AFP via Getty Images

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A major commodity index is expected to rise monthly for a fifth straight month, its longest gaining streak since 2020. Natural gas and food are among the top commodities as Russia’s war in Ukraine continues to threaten global supplies.

The S&P GSCI SPGSCI, a commodity index composed of 24 exchange-traded futures contracts across five physical commodity sectors, was up 2.5% on April 26. Among the major commodities, natural gas posted the biggest gains, with futures prices rising 21.4% for the month ended April 26.

“The ongoing geopolitical factors have impacted many commodities across the board, but it has been most notable for commodities that Russia and Ukraine export,” said Hakan Kaya, senior portfolio manager at Neuberger Berman.

Physical traders continued their “precautionary purchases of natural gas” to hedge the potential risk of supply disruptions due to the ongoing conflict, he says, and grain prices also saw a surge on potential export losses from the region. Kaya says US natural gas prices have been “pushed out by fundamentals” as they rallied above $7 per million UK thermal units, a nearly 14-year high.

The European market is very tight due to the war in Ukraine, but supply is “relatively plentiful in the US,” he says. US natural gas prices have “outperformed” fundamentals, he says, as there are physical limits to what can be sent to Europe in liquefied natural gas form. He expects US prices “to trend lower in the absence of near-term disruptions from extreme weather events such as hurricanes.”

Energy-related tensions surrounding the Ukraine war intensified after Russian state-controlled energy giant Gazprom said on Tuesday it had halted natural gas supplies to Poland and Bulgaria after they refused to pay in Russian rubles, as demanded by President Vladimir Putin .

The outlook for oil is more uncertain. US benchmark West Texas Intermediate Crude and global benchmark Brent Crude hit their highest prices since 2008 in March. They were up 1.4% and down 2.7%, respectively, for the month ended April 26th. “There are several competing narratives in the oil market…all of which could go either way,” says Hakan.

“The war in Ukraine could de-escalate if Russia so wishes, and [that] would relieve the energy market,” he says, or the war could “grind on or escalate and push [oil] Prices at record highs.” Meanwhile, China’s Covid-19 restrictions could be brought under control with limited, highly targeted lockdowns.

Food commodities are among the big gainers for the month ended April 26, with frozen orange juice futures up about 12%, wheat up 8.9% and soybeans up 3.3%. Corn is up 7.1% after spending above $8 a bushel for a while, a near 10-year high. “Russia and ally Belarus are major global energy and fertilizer suppliers,” said Robert Ryan, chief commodity and energy strategist at BCA Research. The higher cost of these two commodities is feeding food inflation. “A number of factors are supporting a rise in real, inflation-adjusted food prices,” he says, with price increases reaching levels not seen since 1975 and likely to continue into the second half of the year.

“Food inflation is underpinned by rising incomes, but the cost of inputs like fuel and fertilizer is also rising,” he says. Looking ahead, according to Ryan, BCA Research expects “high agricultural commodity prices and slowing oil demand to continue, with global demand growth growing by 1.6 million and 1 million barrels per day this year and next will slow down”.

Those expectations are in line with sharp downgrades to economic forecasts by the World Bank and International Monetary Fund, which cite pressure from the Ukraine war, Covid-induced lockdowns in China and the central bank’s efforts to curb rising inflation.