Commodity prices are floating in limbo as buyers back away to nervously watch the war in Iraq, analysts say.
The outcome could make things better than they are today, but they could also make things worse.
“It’s having an effect across the board, but it’s a muted impact,” said Brian Clancey of pulse market research firm Stat Publishing.
“It’s all a question of how long does this go on.”
Commodity trader David Reimann of Benson Quinn GMS said the uncertainty caused by the war began to be felt just before U.S. president George Bush issued his 48 hour ultimatum to Iraqi president Saddam Hussein on March 17.
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“When people are unsure in commodity markets, they tend to keep their hands in their pockets,” Reimann said.
“They’ll just wait a few days until we get an indication of how long this could go on.”
Analysts said a short war would probably mean buyers return to the market quickly and that new demand for food for Iraq could surface, which would be good for prices.
But if the war drags on, Persian Gulf buyers will continue to be cautious, and net returns for farmers will suffer. Shipping and insurance rates have sharply increased since the U.S. began threatening war. Buyers in that part of the world are also demanding escape clauses in contracts that will protect them from war-caused cost increases and problems, something that hurts net prices for Canadian growers.
“We’re going back to the way things were traded in the 1970s,” said Clancey, noting contracts during the energy crisis often protected buyers from suddenly increasing fuel prices.
“Certain costs are going up and demand is on hold. People are reluctant to commit because they are worried about future costs.”
While Iraq has not been a big market for Canadian grain, it has been taking about two million tonnes per year of Australian wheat, demand that is now up in the air. One Australian shipment has already been cancelled.
Nearby nations such as Iran are sometimes good Canadian markets, and that is also in question as long as a war lasts.
Clancey said in 2000-01 Canada shipped 133,000 tonnes of special crops to Iran. Most of that was Ontario soybeans, but 14,000 tonnes were lentils.
Saudi Arabia can also be a good market for Canadian pulses, and as long as a war lasts, buyers there will be apprehensive and insurance and freight rates will stay high.
“It didn’t help when the Iraqis tried to lay mines in the gulf,” said Clancy about Iraqi naval operations on the first day of the war.
Canadian Wheat Board market analyst Dwayne Lee said the war isn’t having a big effect on world grain prices.
The New York Stock Exchange initially rose as traders became optimistic about a quick war ending months of anxiety and uncertainty, but commodity exchanges weren’t as active.
Reimann said commodity markets don’t tend to trade as emotionally as stock markets. They are based more on analysts’ conclusions of levels of supply and demand than on intangible factors, such as consumer confidence.
“We don’t worry about that as much in the commodity business,” Reimann said.
“We’re more worried about what the actual buyers and sellers are thinking. What is the crop size? What is the potential demand?”
