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Market Extra: The Russia-Ukraine war is fueling the ‘biggest supply shock to global grain markets’ in living memory

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Wheat futures have surged by nearly a third over the past four days, on track for the biggest weekly rise since at least 1959 as Russia’s invasion of Ukraine crimps exports of the crucial food grain and stokes global inflation fears.

Soft red winter wheat for May delivery
W00,
+6.61%

WK22,
+6.61%

on the Chicago Board of Trade jumped by its expanded, 75-cent daily limit Thursday, a gain of 7.1% to lock at $11.34 a bushel, its highest since March 2008. That leaves wheat up 31.9% in the week to date. If it holds, that would be its strongest weekly rise since at least July 1959, based on available FactSet data.

Corn futures
C00,
+3.38%

have jumped 14% this week and soybean futures have been dragged up more than 5%.

“I am convinced it is going to be the biggest supply shock to global grain markets in my lifetime,” tweeted Scott Irwin, agricultural economist at the University of Illinois, on Wednesday.

“As just one data point. It has been reported that there are 600 million bushels of corn contracted for export that is currently trapped in Ukraine,” he wrote. “And what about 2022 [production]?”

Russia and Ukraine combined account for 25% of global wheat exports and Ukraine alone for 13% of corn exports, according to analysts at RBC Capital Markets.

Read: Ukraine invasion stokes stagflation worries because Russia is a ‘commodity superstore’

This week’s price jump for wheat is on track to easily surpass the previous weekly record rise of 21.2% seen in July 1975, according to Dow Jones Market Data. The surge comes alongside a sharp rise in prices for oil CL.1, which has soared well above $100 a barrel, and other commodities, including key industrial metals, in the wake of the invasion.

See: Why Russian oil can’t find buyers even as crude nearly touches $120 a barrel

Soaring commodity prices will stoke inflation already running at a nearly 40-year high in the U.S., while threatening the outlook for growth.

Also read: Fed’s Powell says Ukraine war is adding to upward pressure on inflation

Irwin wrote on Twitter that the only policy lever available to the U.S. government in response may be to open up its Conservation Reserve Program. The CRP is administered by the Agriculture Department’s Farm Service Agency and pays farmers a yearly rent to take environmentally sensitive land out of production. More than 20 million acres are currently enrolled.

Wheat exports from the Black Sea region have been stranded since Russia’s invasion of Ukraine on Feb. 24, according to S&P Global Commodity Insights.

Traders are also worried that the war will interfere with spring planting in Ukraine and future harvest activity.

In addition to the immediate shutdown of exports out of Russia and Ukraine, there are also worries “over a disruption in the supply chains in case of Russian control over the sea of Azov, as it is a pivotal link in the commodities supply chain between Russia, Ukraine and the EU,” wrote economists at Athens-based Eurobank, in a Thursday note.

“Moreover, disasters in this year’s harvest due to prolonged military operations and destruction of related infrastructure [in Ukraine] increase the perils that inflate today’s prices,” they said.

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