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Market factors - oil and energy

Фактори на пазара – петрол и енергия

This week, in a series of articles, we describe the main factors influencing the wheat market. Today we will look at two new ones, oil and energy.

Oil is an important factor that affects the price of wheat. The oil market affects prices both directly, through production inputs for agriculture, and indirectly, through the demand for biofuels and the resulting substitution effects.

Fertilizer, farm machinery and transportation prices are affected by the price of crude oil, which affects wheat production costs.

Green policy changes the structure of the market. For example, the European Union, the United States and other countries with large agricultural sectors are promoting biofuels by introducing production subsidies and quotas for renewable fuels, further stimulating demand for biofuel inputs.

In recent years, biofuels have had a significant impact on wheat prices as, with high oil prices, demand for biofuels increases and agricultural land is devoted to energy crops such as corn (or others) instead of wheat.

This competing land use thus reduces wheat production, which may explain some of the volatility and upward pressure on the crop's prices.

Energy costs are another major factor affecting the price of wheat. Higher energy costs mean higher production costs for wheat, as well as higher costs to transport it to market. Energy is a significant part of operating costs for most crops.

This is especially true when indirect energy costs are considered fertilizer costs, as fertilizer production is extremely energy-intensive and requires large amounts of natural gas. For some crops, including wheat, combined energy and fertilizer costs make up more than half of total US operating costs.

Many analysts believe that the impact of energy prices on food commodities is greater than on biofuels. They find that aspects of changing energy prices have had the greatest impact on commodity prices, including wheat, over the past few decades.

What are the other factors dictating the course of the world stock exchanges and grain markets, follow in Agrinizer News in the next days.

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