The world is a very different place than it was last month. With Russia’s invasion of Ukraine, large-scale war has returned to Europe. The human cost of the conflict is immeasurable – but it has also brought historic turmoil to financial markets. Today, I want to take an in-depth look at the epic dislocations in the agricultural commodities market caused by the conflict.
These markets, which are eminently important for feeding the world’s population, are unfortunately often forgotten in the thunder of the cannons. The concrete background here is that Russia and Ukraine are both major wheat exporters.
Wheat Prices Shoot Up
Last Wednesday, wheat prices on the European market rose to just under 290 euros per ton and again on Thursday. Even in Chicago (ZW=F) – far away from the battlefield – they’re up more than 17% over the last week.
The conflict is also exerting upward pressure on the prices of many other grains and on seed oils. Russia and Ukraine account for about 29% of global wheat exports. They also account for 19% of global corn shipments and 80% of sunflower oil exports,. Thus there are fears in the market that the violence will massively hinder global trade.
Supply & Demand Risks in Agricultural Commodities
At the same time, there’s concern that this development could trigger a boom in demand from importers. After all, supplies that have so far come from the Black Sea region may have to be replaced.
Reports say that the conflict between Russia and Ukraine have significantly exacerbated supply risks with regard to agricultural commodities for the world market. It’s now expected, indeed hoped, that wheat exports from the European Union could increase significantly. Whether this will be the case is completely unclear.
Only when the harvest has been harvested can exports be made. We can only hope that the whole malaise will not be compounded by a bad harvest. Either way, at the end of the day, our daily bread will not become cheaper. Be prepared for it!
