Wheat prices have fallen from their peak after Russia’s invasion of Ukraine, but experts say one of the world’s most widely consumed foods is still in short supply, and the global hunger crisis is still imminent. It warns that it is.
Like oil, steel, beef and other economically essential commodities, wheat varies in price and availability depending on complex overlapping factors such as geopolitics and weather. Falling wheat prices bring some rest to countries that rely on crop imports, which may discourage farmers from planting any more. Nor does the price decline address existing problems exacerbated by the war between the world’s two largest producers. Energy prices remain high, affecting the cost of operating farm tools and transporting wheat to the market, as well as the cost of fertilizer. And hot, dry weather, which weighs on yields, is becoming more common.
Ehsan Khoman, who manages emerging markets and commodity research at Mitsubishi UFJ Financial Group, a Japanese bank, said: “Food prices can run wild.”
The wheat market is rampant this year.
Russia’s invasion of Ukraine has caused food and fuel prices to skyrocket as war and sanctions disrupted supplies from the world’s two major agricultural and energy exporters. Together, they account for about a quarter of the world’s wheat exports, according to the United States Department of Agriculture.
Oil prices have eased a bit since the beginning of the war, but much more than earlier this year for Americans to fill their cars with gasoline and Europeans to warm their homes with natural gas, and just for free. Costly For anyone anywhere to do something related to the cost of oil. Wheat prices, however, have fallen roughly to the point where they started the year.
According to futures contracts traded in Chicago, the global hub of commodities, prices for widely traded varieties of wheat, which began at around $ 7.70 per bushel, were shortly after Russia’s invasion of Ukraine in late February. It jumped to $ 13. Prices remained almost double digits until they began to fall in mid-June. On Friday, wheat traded for just over $ 8 per bushel.
After the first shock of the aggression, rising prices discouraged some countries from buying wheat, reducing demand and squeezing prices. Increased supply from winter wheat harvests has also lowered prices in recent weeks.
The deal to release trapped grain provides only partial relief.
The main factor pushing down wheat prices was the progress of negotiations over the fate of more than 20 million tonnes of grain stagnant in the ports of the Black Sea in Ukraine. A little over a week ago, an agreement was reached to open an export corridor to allow some of the grain trapped in the war to move around the world.
The deal may not close in the dispute, and even if it does, experts say it is probably not enough to address other issues hanging in the global wheat market.
“This agreement has grown to solve the world’s food shortages, but it’s not,” said Tracy Allen, agricultural strategist at JPMorgan Chase.
From energy and fertilizer prices to climate change, other more established factors in the wheat market can play a greater role in determining the cost and availability of bread around the world.
Experts believe that wheat prices are likely to rise again. To add further uncertainty, futures contracts work by allowing buyers and sellers to agree on the price of wheat to be delivered in the future, usually three months later. And many things can change in three months.
“Prices will remain high and consumers will feel it in the prices of products they buy on supermarket shelves,” Allen said.
Climate change makes wheat yields less predictable.
Last year’s drought meant that even before Russia invaded Ukraine, there was pressure on the global food market.
Good harvests have been seen in some areas, such as Argentina, and large yields are expected in Russia this summer, but the heat and low rainfall have affected the amount of wheat that can be grown in other areas.
In Canada, temperatures soared and set a new record. As of the end of July 2021, about three-quarters of the country’s agricultural land was classified as abnormally dry. Canada’s wheat production fell by nearly 40% between 2020 and 2021, and exports to Latin America and the Caribbean fell by more than 3 million tonnes. According to USDA
The decline in global supply due to bad weather has already helped boost prices coming this year. In January 2020, wheat was about 30% cheaper than it is today.
Wheat production in Canada is expected to recover next year.Also US spring crops led by North Dakota Expected to be robustHowever, Europe has been hit by the heat wave, fears of low yields, and India banned wheat exports in May due to drought.
Experts warn that weather fluctuations can be more pronounced, increasing uncertainty about global production and future price directions.
Energy prices are important for wheat farmers.
Oil prices primarily determine the cost of operating agricultural tools and transporting harvested grain. The price of natural gas is even more important to farmers, as the nitrogen used to produce fertilizers such as ammonia and urea is produced from natural gas.
“Not only grain prices, but also shipping, fuel and fertilizer prices are important,” said Luis Eduardo Peikoto, an economist specializing in BNP Paribas’ emerging markets.
Russia, the world’s largest fertilizer producer, is steadily limiting the flow of natural gas to Europe, pushing up fuel prices as well as the cost of nitrogen-based fertilizers. As the price of fertilizer went up, so did the price of wheat, which went up last week.
Russian fertilizer is so important to the world’s agricultural trade Avoided International sanctions restricting other Russian exports have given Moscow political influence on another important commodity needed by the world.
Low prices are not always good for wheat growers.
The higher costs of fuel and fertilizer can cut into the profits farmers can make and create a dilemma for wheat-producing countries. Dan Basse, an agricultural economist and president of analytics firm AgResource, said this is especially true in Ukraine, where it costs money to transport wheat to foreign buyers because of the war.
High prices hurt countries that import wheat, but low prices could discourage farmers from planting extra this year as they tackle the challenge of selling current crops, especially in Ukraine. I have.
Egypt and Indonesia are heavily dependent on Ukrainian wheat, and famine-stricken Somalia imports wheat primarily from Ukraine and Russia.
USDA predicts that 18.8 million metric tonnes of wheat exported by Ukraine in the last 12 months will drop to about 10 million tonnes in the next 12 months.
“Farmers can’t afford to plant the next crop,” Basse said. “For farmers to expand their planting in the next growing season, global wheat prices need to rise.”
But even if prices rise and encourage more planting, it is irrelevant if grain storage is flooded, as farmers struggle to move crops around conflict areas. You may find out.
“It doesn’t really matter how high the price is,” said Allen of JP Morgan. “It does not solve the problem of removing wheat from the farm.”
International organizations have repeatedly warned about how changes in post-war trade patterns in Ukraine can keep prices of commodities such as wheat higher than usual. However, some experts say the warning has not been paid attention to.
“The issues affecting the food market have not been resolved,” said Corman of Mitsubishi UFJ Financial Group. “Still missing.”
