Current developments in the raw materials and energy markets

Wars, Covid, and climate change are three of the reasons why recent years have repeatedly brought significant price fluctuations and supply shortages for raw materials and energy. The overall global situation remains unpredictable, but companies in the food industry can take precautions to be prepared for times of crisis.

Energy prices on a rollercoaster ride

Food Cluster Hamburg recently held a workshop titled "Current Developments in Raw Materials Markets and Energy Prices." The speaker was Carsten Fritsch, a renowned expert from Commerzbank's commodity analysis team. One topic covered was the development of oil prices in recent weeks and months. Prices temporarily reached highs well above 100 US dollars per barrel and remain subject to considerable fluctuation, depending on daily developments. It's hard to predict whether and when lasting peace will come to the Middle East and when the Strait of Hormuz, so crucial for shipping, will once again be safely passable. Following agreement on a framework deal, however, there is reasonable hope that this could happen in the coming weeks, which is why oil prices have recently dropped sharply.

What lessons can be drawn from this? For Europe, it means continuing to expect the unexpected and becoming as independent as possible from imports from crisis regions. Expanding renewable energy is one way to achieve this. Companies, whether in the food industry or other sectors, have little influence over these developments and can only take limited countermeasures. One option would be to review existing production processes and develop energy-saving alternatives. In individual cases, at least partial self-sufficiency, for example through a photovoltaic system, can also be a worthwhile consideration.

Many developments in raw materials markets can be foreseen

Food companies can prepare much more concretely for price fluctuations and supply shortages involving raw materials. High volatility has recently been observed in wheat, sugar, cocoa, and coffee, among others. This is partly related to the war in the Middle East, as the closure of the Strait of Hormuz led to higher prices for nitrogen fertilizer. US tariff policy has also contributed to volatility. But climate change or recurring phenomena like El Niño, which affect harvest outcomes, are often the cause as well. Reliable sources such as the US Department of Agriculture, the International Grains Council, or news agencies like Reuters and Bloomberg regularly publish reports that offer insight into future developments.

Analyzing such sources should serve the goal of achieving the highest possible degree of financial stability. This applies both to internal costs and to product pricing. Many consumers are currently struggling with inflation, particularly in food prices, and tend to hold back on purchases in response to sharp price jumps, as could be observed with chocolate, for example.

To avoid dependence on short-term developments and to anticipate supply shortages, there are two key measures:

Building up stockpiles
Many raw materials have a long shelf life, so it makes sense to build up a stockpile when prices are low. This requires sufficient storage capacity. If that isn't available, creating additional space may pose a temporary financial challenge, but it could pay off in the long run as an investment in the future.

Reviewing supply chains
There are several levers to pull when it comes to supply chains. The most important is diversification, meaning sourcing raw materials from various origins and multiple suppliers. This may lead to somewhat less favorable terms than a large order placed with a single company, but it reduces dependency. Diversification can apply both to individual partner companies and to countries of origin. It's also worth examining whether regional sources can at least partially meet demand. Another factor to consider when looking at the supply chain is its complexity. The more links it includes, the greater the likelihood that a weak point could occur somewhere along the way. Here, it's important to find shorter, simpler paths. This may only seem to contradict the diversification recommended above, since the focus here is on analyzing partner companies' upstream supply chains.

Conclusion

The food industry must keep an eye on two particularly volatile markets in its financial planning: energy and agricultural raw materials. With forward-looking planning and measures geared toward the long term, even periods of crisis can be managed successfully.