The price of wheat has fallen from its peak after Russia invaded Ukraine, but experts say one of the world’s most consumed foods remains in short supply and warn a global hunger crisis is looming. still profile.
Like oil, steel, beef and other raw materials integral to the economy, the price and availability of wheat evolves in response to a complex set of overlapping factors, such as geopolitics and weather report. Although the lower wheat price offers some relief to countries that depend on importing the crop, it may deter farmers from planting more. The drop in prices also does not solve pre-existing problems made worse by a war between two of the world’s largest producers. Energy prices remain high, affecting the cost of operating farm equipment and transporting wheat to market, as well as the cost of fertilizers. And hot, dry weather that reduces crop yields is becoming more common.
“The fundamental situation hasn’t really changed,” said Ehsan Khoman, who manages emerging markets and commodities research for Mitsubishi UFJ Financial Group, a Japanese bank. “There is a potential where food prices could spin out of control.”
The wheat market has boomed this year.
Russia’s invasion of Ukraine has caused food and fuel prices to soar, as war and sanctions have cut off supplies to two of the world’s leading agricultural and energy exporters. The two countries together account for about a quarter of global wheat exports, according to the US Department of Agriculture.
Oil prices have fallen a little since the beginning of the war, even if it still costs much more than at the beginning of the year for Americans to fill up with gasoline, for Europeans to heat their homes with gas natural and for just anyone anywhere to do anything related to the cost of oil. Wheat prices, however, fell back to about where they started the year.
The price of a widely traded type of wheat that started the year at around $7.70 a bushel jumped to $13 in the aftermath of Russia’s invasion of Ukraine in late February, futures show. traded in Chicago, a global hub for the commodity. The price generally remained in the double digits until mid-June when it began to decline. On Friday, wheat was trading at just over $8 a bushel.
After the initial shock of the invasion, rising prices deterred some countries from buying wheat, lowering demand and weighing on prices. A slight increase in supply from the winter wheat harvest has also pushed prices down in recent weeks.
An agreement to release the trapped grain brings only partial relief.
Progress in negotiations over the fate of more than 20 million metric tons of grain stranded in Ukraine’s Black Sea ports was one of the main factors pushing down wheat prices. Just over a week ago, a deal was struck to open an export corridor to allow some of the war-trapped grain to move around the world.
The deal may not hold amid the fighting, and even if it does, experts say it is unlikely to be enough to address other issues plaguing the global wheat market.
“This deal was touted as a solution to the global food shortage, and it just isn’t,” said Tracey Allen, agricultural commodities strategist at JPMorgan Chase & Co.
Other factors more rooted in the wheat market, from energy and fertilizer prices to climate change, could play a bigger role in determining the cost – and availability – of a loaf of bread in the world. Experts believe wheat prices are likely to rise again. Adding further uncertainty, futures contracts work by allowing buyers and sellers to agree on a price for wheat that will be delivered in the future, usually three months from now. And a lot can change in three months.
“Prices are going to stay higher, and consumers are going to feel that in the price of the products they buy on supermarket shelves,” Allen said.
Climate change is making wheat harvests less predictable.
Last year’s droughts meant that even before Russia invaded Ukraine, global food markets were under pressure.
Although some regions such as Argentina have recorded bumper harvests and Russia is expected to have a bountiful harvest this summer, intense heat and low rainfall have affected the amount of wheat others could grow.
In Canada, temperatures have reached record highs. At the end of July 2021, about three-quarters of the country’s agricultural land was classified as abnormally dry. Canada’s wheat production has fallen nearly 40% from 2020 to 2021, pushing its exports to Latin America and the Caribbean down by more than 3 million tonnes, according to the USDA.
Lower global supply resulting from bad weather had already helped push prices higher heading into this year. In January 2020, wheat was about 30% cheaper than today. Canadian wheat production is expected to increase over the next year. The US spring crop, led by North Dakota, is also expected to be robust. But Europe suffered a heatwave, raising fears of a low yield, while India banned wheat exports in May due to drought.
Experts warn that weather fluctuations are likely to become more pronounced, adding to uncertainty over global production and the direction of prices going forward.
Energy prices are important to wheat producers.
Oil prices largely determine the cost of operating farm equipment and transporting harvested grain. Natural gas prices are even more important to farmers because nitrogen, used to produce fertilizers like ammonia and urea, is produced from natural gas.
“It’s not just grain prices, but also shipping costs, fuel prices, fertilizer prices, etc.,” said Luiz Eduardo Peixoto, emerging markets economist at BNP Paribas. .
Russia, the world’s largest fertilizer producer, has steadily restricted the flow of natural gas to Europe, not only driving up fuel prices but also raising the cost of nitrogen-based fertilizers. As fertilizer prices rose, wheat prices also rose last week.
Because Russian fertilizers are so important to global agricultural trade, they have avoided international sanctions that have restricted other Russian exports, giving Moscow political influence over another crucial product the world needs.
Lower prices are not necessarily a good thing for wheat producers.
Higher fuel and fertilizer costs eat away at the profits farmers can make and create a dilemma for wheat-producing countries. This is especially true for Ukraine, where transporting wheat to overseas buyers has become expensive because of the war, said Dan Basse, an agricultural economist and president of AgResource, an analytics firm.
Although high prices are hurting wheat-importing countries, low prices could deter farmers from planting more this year, especially in Ukraine, as they face difficulties in selling their current crop, which could prevent them from growing. allow more cultivation. Egypt and Indonesia are heavily dependent on Ukrainian wheat, and famine-stricken Somalia imports wheat mainly from Ukraine and Russia.
The USDA predicts that the 18.8 million metric tons of wheat that Ukraine exported over the past 12 months will drop to around 10 million over the next 12 months.
“Farmers cannot afford to plant the next crop,” Basse said. “We need world wheat prices to rise for farmers to expand plantings in the next growing season.”
Yet even if prices rise enough to encourage more planting, it may prove useless when grain storage overflows as farmers struggle to move crops in conflict zones.
“It doesn’t matter how high the prices are,” said JPMorgan’s Allen. “It doesn’t solve the problem of removing wheat from farms.”
International agencies have issued repeated warnings about how changing post-war trade patterns in Ukraine could keep prices of commodities such as wheat higher than usual. But some experts say the warnings are not being heeded.
“The issues affecting food markets have not been resolved,” said Khoman of Mitsubishi UFJ Financial Group. “There is always a shortage.” This article originally appeared in The New York Times.