Filling up with gas is no fun at all at the moment, with prices hitting records in the European Union and climbing in the U.S. Experts believe that prices will continue to rise. On the one hand, because the oil association OPEC is raising the production volume less than expected. On the other hand, the Ukraine conflict and the weak euro are driving up the price.
To make matters worse, the Ukraine conflict isn’t only a major risk for the oil price, but also for the price of wheat. Weekly grocery shopping could soon become considerably more expensive if pasta, bread and other cereal products become more expensive.
Only few know that the wheat prices had risen in January at times strongly. Now commodity experts are watching the escalating Ukraine conflict with concern. Will Russia invade its neighboring country? What does that mean for you as an investor?
The Wheat Market Could Be Wiped Out
If the situation does escalate, we would all feel the consequences. Wheat supplies could then be affected or even blocked. “In extreme cases, deliveries of up to 16 million tons of wheat from Russia and Ukraine could be affected,” explains Carsten Fritsch, commodities expert at Commerzbank to tagesschau.de.
According to tagesschau.de, Russia and Ukraine are the most important global wheat exporters. Estimates by the International Grains Council (IGC) show Russia and Ukraine are likely to rank second and third after the EU in the current 2021/2022 crop year – ahead of Australia.
The two Black Sea countries export around 60 million tons of wheat. That is around 30% of global wheat trade by volume.
If Russia’s invasion of Ukraine were to stall wheat trade, another wheat exporter could hardly compensate for the loss. So there is a risk of a supply shortage, which would drive up the price of wheat.
Investors who were invested in wheat may have been able to take profits after the recent wheat price rally, but forecasts about future developments are difficult.
Rising Energy Prices Boost Price of Wheat
However, the rising price of oil and rising energy prices could drive up the price of wheat even further. This is because rising energy prices also make the production of nitrogen fertilizers more expensive. For many fertilizer factories, production is already no longer profitable. They are therefore cutting back production. The next harvest could therefore be poorer due to lower fertilizer use, which in combination with the other risk factors could drive the price up further.
Investors in the commodity markets should keep a close eye on the price of wheat to perhaps take one or two attractive profits. Consumers will notice the rising prices primarily in their more expensive weekly shopping. The high prices will put a painful strain on your wallet, but you don’t have to put up with it.