What does the price of corn have to do with your costs at the gas pump? A lot, as it turns out.
The surging price of corn hit another milestone on last month as the cost of global commodities continues to inflate. The contracts for July corn futures were trading above $8 per bushel – the highest level since September 2012. For context, the contracts were trading near $6 per bushel at the start of the year.
Partly due to the war in Ukraine, corn is just one of several agriculture commodities that has seen surging prices in recent weeks. Ukraine is a major exporter of wheat and other items, such as sunflower oil, while Russia is a key producer of wheat and many of the chemicals used in fertilizer. That is leading futures traders to bet that higher production costs and more demand for corn as a substitute food item will drive up the price.
Even prior to the war, agricultural commodities were experiencing upward pressure due to general economic inflation resulting from supply chain disruptions and high transportation costs still lingering from the pandemic. Drought in the western U.S. and elsewhere in the world has also driven prices higher.
In addition to global supply concerns hitting agricultural commodities broadly, corn also has a potential source of additional demand. President Biden announced last month that his administration would temporarily allow the sale of higher-ethanol gasoline over the summer (typically one of the highest demand periods for gasoline in the U.S.), in an attempt to offset rising energy costs.
Given the global nature of our supply chains and economies, it is more true than ever that what happens in one country affects the rest of the world. And unfortunately right now, one of the areas hardest hit is our wallets at the gas pump.