Latest / The Commodities Economy with Fexingo: Oil, Gold, Wheat, and Raw Material Markets / Why Food Prices Defy Energy Drops
Transcript
- Lucas: If walking through the economy with us has made something click, you might want to help us keep this show ad-free. We deliberately don't run ads on these because we want the conversation to stay sharp and focused on what actually matters to your wallet. Luna: Yeah, and if that resonates, the link is buy me a coffee dot com slash fexingo — that's F. E. X. I. N. G. O. Lucas: It really is just about keeping the lights on without selling out our time. Now, let's get back to the numbers, because there is a massive disconnect happening in the markets right now that almost no one is talking about. If you look at crude oil today, it is hovering around one hundred dollars a barrel, but natural gas has spiked nearly ten percent over the last five days. Luna: That spike in natural gas is huge because it is the primary ingredient for nitrogen fertilizer. Why does that matter so much when energy stocks seem relatively stable? Lucas: Because fertilizer is the hidden tax on every loaf of bread and every head of lettuce. When natural gas gets expensive, production costs for ammonia and urea skyrocket, and farmers have to pay more or plant less. We saw this play out earlier in the year with the steel price paradox, but this time it is hitting the agricultural sector directly. Luna: So even if oil prices drop, the cost of growing food stays high? That seems like a direct hit to the grocery shopper. Lucas: Exactly. And the data backs it up. The latest CPI reading shows the all urban consumer index at three thirty-six point three, which is up from three thirty-four point thirteen. But if you look closer at core CPI, which excludes volatile food and energy prices, it is sitting at three thirty-eight point nine. Luna: That means inflation is still sticky even when we take the most obvious drivers out of the equation. What is driving that core number then? Lucas: It is the services side, but also the structural costs of goods. Think about shipping. We covered the shipping toll squeezing commodity prices in previous episodes, but now we are seeing the downstream effect. When input costs like fertilizer rise, those costs get baked into the final product and they do not come back down easily. Luna: Right, businesses don't lower prices just because their costs stabilize; they usually hold onto the margin. So the consumer keeps paying the premium. Lucas: Precisely. And this is where it gets interesting for investors. Early third-quarter earnings showed a resilient U.S. consumer, but also signs of strain. People are still buying, but they are trading down to private labels and cutting back on discretionary items. The grocery bill is eating into the budget for everything else. Luna: It feels like the economy is bifurcating. You have sectors that are booming, like AI memory chips, while everyday consumers are feeling the pinch at the supermarket. Lucas: That is a great way to put it. The tech sector is riding an AI wave that is completely detached from the price of wheat. SK Hynix just reported profits that sharply beat estimates, driven by demand for high-bandwidth memory. Meanwhile, a farmer in Iowa is watching his input costs climb because natural gas prices are up. Luna: It is wild how disconnected those two worlds are. One is powered by silicon and code, the other by dirt and diesel. How does this affect the broader market outlook for the rest of the quarter? Lucas: It suggests that inflation will remain stubbornly above the Federal Reserve's target. The ten-year breakeven inflation rate is at two point three five percent, which is up slightly from two point three four. Markets are pricing in that this pressure isn't going away quickly. Luna: So the Fed is likely to stay cautious. They can't cut rates aggressively if food and service costs are still rising. Does that mean volatility in commodities will continue? Lucas: Absolutely. Look at the gold price. It is currently at four thousand seventy-seven dollars, up four tenths of a percent. Gold is acting as a hedge against this persistent inflation uncertainty. Investors are worried that central banks will be forced to keep rates higher for longer to combat these sticky price pressures. Luna: I noticed silver is down slightly though. Is it lagging behind gold? Lucas: Silver is down half a percent, but it is still holding near fifty-four dollars. Silver has industrial uses, so it reacts to manufacturing demand too. Right now, manufacturing is mixed. We are seeing strength in tech hardware, but weakness in traditional industrial metals. It creates a complex picture for anyone trying to allocate capital. Luna: What about copper? We talked about the copper shortage in episode two seventeen, and I know aluminum had its own issues recently. Are those constraints easing? Lucas: Copper is actually up four point seven percent to six point sixty-six dollars. It is surprising given the broader economic slowdown fears. The reason is the green transition. You need copper for electric vehicles and renewable energy infrastructure. Even if car sales slow down, the long-term demand for grid modernization is pushing prices up. Luna: So the same factors that drive up food costs are also driving up the cost of building new energy systems. It is a universal input cost problem. Lucas: Yes, and that is why the 'green premium' we discussed earlier is real. It is not just a marketing term. It is the actual cost difference between fossil-fuel-based inputs and the new materials needed for a low-carbon economy. Until supply chains scale up, those premiums will persist. Luna: Do you think this will force companies to innovate faster? Or will they just pass the costs to consumers indefinitely? Lucas: Both. Companies are innovating, but they are also passing costs. Amazon recently sent a memo telling engineers to be pickier about using AI, partly to control computational costs. But on the physical side, retailers are raising prices. The PCE price index is at one thirty-one point six, up from one thirty-one point seventeen. Core PCE is at one thirty point five. Luna: These numbers are inching up, not exploding. Does that mean we are avoiding a recession? Lucas: We are avoiding a hard landing, but we might be stuck in a soft stall. Growth is slowing, but not collapsing. The labor market is still creating jobs, but wages are not keeping pace with the cost of living for many households. That is the strain we are seeing in the earnings reports. Luna: It sounds like the consumer is running on fumes. What should listeners be watching in the next few weeks to gauge if things improve? Lucas: Watch the natural gas prices closely. If they stabilize, fertilizer costs might drop, which could ease food inflation. Also, keep an eye on the ten-year Treasury yield. If it spikes, it puts pressure on housing and corporate borrowing. For now, it looks like we are in a holding pattern. Luna: So, stability is the keyword here. Not boom, not bust, just steady pressure. Lucas: Exactly. And for those who enjoy this deep dive into the mechanics of the economy, remember that we keep this network independent. If you want to support that mission, the link is buy me a coffee dot com slash fexingo — that's F. E. X. I. N. G. O. Luna: Thanks for helping us keep the signal clear. Back to the markets, do you think the recent election-transfer concerns will impact commodity trading volumes? Lucas: Speaker Mike Johnson called those concerns absurd, and generally, markets ignore political noise unless it affects policy directly. Right now, policy is static. So trading volumes should reflect fundamentals, not headlines. The focus remains on supply and demand for oil, gold, and wheat. Luna: It is reassuring that markets can sometimes tune out the noise. Let's wrap up with one final thought on where we stand in October twenty twenty-six. Lucas: We are in a period of adjustment. Inflation is sticky, growth is moderate, and input costs are elevated. The smart move is to stay diversified and watch the energy sector for clues about future food and material prices. The story is not over, but the chapters are writing themselves slowly.