Jump to content

Wheat prices skyrocketing as Russia-Ukraine war intensifies


Recommended Posts

Wheat prices could be hitting record highs again this week. While Russia and Ukraine together generate 30% of global production, exports from both countries have all but ceased.

Source: Bloomberg

As Ukraine prepares to enter its third week of war with Russia, the outlook for commodities has been drastically altered. Metals Nickel, Palladium, Gold, and Aluminium are all at record or near-record highs.

Nickel trading is suspended at the London Metal Exchange after it squeezed to over $100,000/tonne. Brent Crude is at $127 a barrel, just $20 shy of its record high in July 2008.

And with the war continuing to escalate, new commodity records could be here soon.

Wheat price pressure

Less reported is the impact on global wheat prices. Global benchmark Chicago Wheat is at $12.29/bushel, dipping from its $13.63/bushel record last week. For context, the benchmark was trading under $8/bushel in mid-February. And it was only $5/bushel in mid-August 2020, as wheat prices were already under strong inflationary pressure exacerbated by the covid-19 pandemic.

Moreover, the limit price of $0.85 a day for wheat futures has been hit multiple times over the past few days, while further rises could be imminent as 61% of IG clients are currently long on the market.

According to the US Department of Agriculture, Russia was the world’s leading exporter of wheat in the last marketing year (ended June 2021), making up 20% of global exports of 39.1 million tons of wheat. With Ukraine also accounting for 10% of exports, a third of the global supply has now dried up.

Ports in Ukraine are closed, preventing shipments from both countries from departing. But the long-term problem is future supply; the physical impact of war is destroying crops, and many Ukrainian farmers who would usually begin planting wheat in Spring are instead fighting Russians or fleeing the country.

And helping drive record wheat prices is a squeeze on short positions held before the war in Ukraine began. AgResource says ‘the short squeeze in wheat has been breath-taking as the world lost 30% of its export capacity due to Russia’s war on Ukraine and closure of Black Sea supplies… Importers will draw down their own domestic stocks and scour the world for additional supply for April/May.’

And StoneX analyst Arlan Suderman believes ‘the Black Sea absence is already hitting hard as global importers desperately seek replacements.’ The impact on countries dependent on Ukrainian and Russian supplies will be acute. Egypt’s state procurer of wheat has had to cancel two orders in the past week for overpricing and because companies are refusing to sell their supplies.

Mirette Mabrouk at the Middle East Institute believes that ‘bread is extremely heavily subsidized in Egypt, and successive governments have found that cuts to those subsidies are the one straw that should be kept off the camel’s back at all costs.’ But this will become increasingly difficult to maintain.

Wandile Sihlobo at the Agricultural Business Chamber of South Africa says African countries imported $4 billion of agricultural products from Russia in 2020, 90% of which was wheat. The continent is being forced to source this supply elsewhere, dricing up prices.

wheat 2
Source: Bloomberg

Fertilising further problems

Russia also produces 13% of the global total of potash, phosphate and nitrogen-containing fertilisers, amounting to some 50 million tonnes. And the country’s Ministry of Industry and Trade has put restrictions on some exports of fertiliser and fertiliser ingredients, which is being compounded by insurers who are refusing to cover Russian exports for fear of a future embargo.

Russian gas, another essential component of fertiliser manufacturing, is also at record prices and under threat of future sanctions. Fertiliser prices are already surging close to £1,000, up from around £650 last week, as farmers stockpile fearing continued price hikes.

The National Farmer’s Union says prices for nitrogen fertiliser are already up 200% since last year, leaving famers forced to buy less, leading to a lower yield production, further driving up wheat prices. Julia Meehan at commodity agency ICIS argues ‘all everybody is talking about is availability (of fertiliser). There are huge concerns.’

And Yara International CEO Svein Tore Holsether believes ‘it’s not whether we are moving into a global food crisis – it’s how large the crisis will be.’ He maintains that ‘we were already in a difficult situation before the war... and now it's additional disruption to the supply chains and we're getting close to the most important part of this season for the Northern hemisphere, where a lot of fertiliser needs to move on and that will quite likely be impacted.’

Ukraine is oft-cited as ‘the bread-basket of the world;’ its national flag a field of wheat under a blue sky. With supply collapsing, the wheat price could soon hit new highs.

Over 35 commodities at your fingertips – trade spot, futures and options plus invest in stocks and ETFs all on one award-winning platform.* View our commodities offering or begin trading now.

* Best trading platform and best trading app as awarded at the ADVFN International Financial Awards 2021

Charles Archer | Financial Writer, London
10 March 2022

Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • Posts

    • Sainsburys full year earnings and Unilever’s first quarter trading update both say the same thing, UK consumers are in for higher prices. The war in Ukraine, supply chain issues and the effects of ongoing Covid all to blame.      
    • US Dollar (DXY) Daily Price and Analysis US Q1 GDP may stall the greenback’s advance. A 20-year high nears for the US dollar. The multi-month US dollar rally continues with the greenback printing a fresh high today ahead of the first look at US Q1 GDP at 12.30 GMT. The US dollar basket (DXY) has been boosted by renewed weakness in the Euro and the Japanese Yen, as investors move from lower-yielding to higher-yielding currencies, while safe-haven flows continue to benefit the greenback. The US growth release later in the session is expected to show a sharp slowdown from the robust Q4 figure of 6.9%. The markets are currently pricing in growth of just 1% for the first three months of this year, with the slowdown mainly due to a reduction in inventory accrual over the quarter. This release is unlikely to move the greenback, unless there is a large miss or beat, as the Fed believe that 2022 US growth will be robust enough to let them tighten monetary policy sharply without damaging the economy. The latest US Core PCE data – the Fed’s preferred inflation reading – is released on Friday and this may have more effect on the US dollar than today’s GDP data. For all market moving economic data and events, see the DailyFX Calendar. The ongoing US dollar rally has been aided by weakness across a range of G7 currencies including the Euro, the Japanese Yen, and the British Pound. The Euro continues to battle with lowly growth expectations, exacerbated by energy concerns, the British Pound is mired by weak economic data, while the Japanese Yen is in freefall as the BoJ continues with its ultra-loose monetary policy.   The US dollar continues to press higher and looks set to break above 103.96, the March 2020 high. Above here the US dollar would be back at levels last seen nearly two decades ago. The March resistance will likely hold in the short-term, especially with month-end portfolio rebalancing at the end of the week, but US dollar strength is set to continue in the months ahead. USDOLLAR (DXY) WEEKLY PRICE CHART – APRIL 28, 2022 {{THE_FUNDAMENTALS_OF_BREAKOUT_TRADING}} What is your view on the US Dollar – bullish or bearish?   Apr 28, 2022 | DailyFX Nick Cawley, Strategist
    • While Tesla has nothing directly to do with Elon Musk buying Twitter - TSLA stock closed down 12% on news that Musk may have to sell stock and use other holdings to stand against the loan to finalise the purchase of the social media giant.        
  • Create New...