Blame Bad Weather for Your Bigger Bills
By Ryan Dezember
The Wall Street Journal
One of the major inflationary forces of 2021 has been the weather.
Wild weather around the world wreaked havoc on markets for raw materials, lifting prices for everything from electricity and heat to houses and breakfast cereal.
Policy makers and investors have debated the effects of fiscal and monetary policy on inflation, but a big reason for rising prices this year have been factors that neither lawmakers nor central banks can do much about. Prices for natural gas, lumber, corn, soybeans, wheat and other building blocks of modern commerce surged to multiyear highs—in some cases records—because of fire, freezes, flood, drought, hurricanes and some of the hottest weather ever.
Weather is always at play in commodities markets. A freeze in Florida pushes up orange-juice futures. A blizzard in Chicago boosts natural gas prices. A bumper crop floods the market. But this year the weather was steadily extreme and often in ways that sent commodity prices higher.
Low production of fuel and grain due to a yearslong energy slump and the trade war with China set the stage for rising commodity prices. The pandemic disrupted output further. From there, the weather took over. “Weather is probably the biggest factor of higher prices,” said Craig Turner, senior commodities broker with StoneX Financial Inc.
It all started in February when Texas froze over. Winter Storm Uri drove up demand for natural gas for heat while clogging wells with ice, which drastically reduced production in the region that needed fuel to stay warm.
Spot prices spiked around the country. At the main U.S. gas-trading hub, a pipeline junction in Louisiana known as the Henry Hub, the price hit a record of $23.86 per million British thermal units. The cold also crimped the Gulf Coast’s chemical plants, which are unaccustomed to freezing temperatures, setting the stage for shortages and higher prices for basic materials like PVC pipe and paint resins.
In South America, the worst drought in decades scorched growing regions, wilting Brazil’s export corn crop and leaving the Paraná River too shallow for fully loaded boats to pass from Argentina’s interior to Atlantic shipping lanes. By mid-May, corn and soybean futures had risen to their highest prices in several years.
Drought struck North America, drying up hydropower in the West. One big hydropower station in northern California had to be shut down completely when Lake Oroville dropped beneath the water level needed to generate electricity. Natural gas and coal were burned to cover the shortfall, driving up prices.
The hottest North American June on record kept air conditioners humming and fuel prices climbing. Triple-digit temperatures buckled roads and killed people in Portland, Ore., and Seattle. The glut of natural gas that had kept American utility bills low for years evaporated as demand for electricity rose.
The heat stretched into July and around the world commodities producers grappled with destructive weather and disaster.
Wildfires broke out in bone-dry forests of the Pacific Northwest. In British Columbia, sawmills were choked off from forests and customers, lifting lumber prices that had just retreated from a historic climb that threatened the housing boom. (Wood prices would soar again in November when floods in British Columbia cut off sawmills).
When commodity broker Tommy Grisafi toured North Dakota farms to size up the spring wheat crop, he found withered fields plagued by grasshoppers that thrive in dry conditions. More than 1.2 million acres planted with spring wheat were never harvested and U.S. production fell 44% this year, according to U.S. Agriculture Department data. A bushel of the soft-red spring wheat favored by bakers and pizza makers doubled, rising to its highest price on the Minneapolis Grain Exchange since the 2008 planting season.
The Canadian prairie was parched, too. A poor crop resulted in record oat prices.
Flooding and a power-grid strained by record temperatures hobbled tin makers in China, the world’s largest producer, which led to record prices of the metal, which is crucial to making circuit boards.
Rivers burst their banks in Germany’s industrial corridor. Copper prices were hovering around record highs when water swept through a facility owned by Aurubis AG, a major metal producer and recycler, forcing it to close for months.
In Brazil, the worst freeze in a quarter-century devastated the coffee crop and arabica bean prices jumped to multiyear highs.
August brought Hurricane Ida slamming into the Louisiana coast, the headliner of the third most active Atlantic storm season on record. Nearly all of the Gulf of Mexico’s natural gas output was knocked offline, which meant higher prices not just for electricity and gas for heat and cooking, but also for fertilizer, cement, steel and plastics, all of which can require a lot of gas to produce. Chemical makers along the coast, which were already struggling to meet demand, were hammered.
Far upstream, in Cleveland, paintmaker Sherwin-Williams Co. had to slow production for lack of necessary resins, additives and solvents. The company warned investors that sales would take a hit and said it was buying a supplier with factories in Oregon and South Carolina to avoid a repeat.
“We have been looking at every possibility to further strengthen and diversify our supply chain so that future natural disasters in the Gulf region will be less impactful to us,” Chief Executive John Morikis said.
By October—North America’s second warmest on record—the heat began to weigh on prices.
Natural gas futures hit $6.31 on Oct. 5, the highest price since frackers flooded the market with shale gas more than a decade ago. But as Americans’ windows remained open and their furnaces off through November, stockpiles that had been burned up to beat the summer heat were replenished. By mid-December, inventories were 1% greater the five-year average and the price was falling with every balmy autumn day.