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Wheat: supply crunch remains threat to commodity prices

Earlier this year, the war in Ukraine raised concerns about hunger In countries dependent on wheat imports. In Chicago, the price of grain has skyrocketed to historic highs. Ukraine’s situation remains unsettled. However, three months later, wheat prices fell sharply.

The markets did not misread the geopolitical situation. True, financial markets can sometimes exaggerate the supply risks of goods. But Russia and Ukraine contribute 28% of world supplies. The ban on India’s wheat exports in May did not help. India, always a major producer, has hoped to expand its wheat exports to 12 million tonnes – and rank it in the top five countries – for the coming year.

However, two recent events have helped allay fears of severe wheat shortages, at least in Europe and Africa. Winter wheat harvests from the U.S. appear in the spring and early summer. This renewed seasonal supply, coupled with talk of a good crop in Australia (not to mention Russia), has robbed some of the energy of the initial jump in price. Australia is the fourth largest wheat exporter in the world after the US.

More importantly, interest rates are rising – pushing prices down.

Nervous traders from the impact of a global economic downturn on commodity demand were alarmed when May consumer price data in May confirmed that the annual inflation rate had accelerated to 8.6%. This led the US Federal Reserve to raise its interest rate range aggressively by 75 basis points.

All world commodity prices then fell in June. This included wheat, both for food and in high-protein premium grades. The stock prices of grain experts like ADM and Bunge followed suit.

Two factors should underpin the price of wheat for the rest of this year, thinks Ola Hanson at Saxo Bank. This month begins the usual two-month wheat harvest season of Ukraine. Even if harvested, this grain will need storage space. A significant amount of grain stored in the ports of Ukraine remains at the site. Elsewhere, uSeasonally warm weather in the northern hemisphere May cause damage to spring wheat crops. In light of these two factors, wheat prices are expected to stabilize in the coming months.

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Wheat: supply crunch remains threat to commodity prices Source link Wheat: supply crunch remains threat to commodity prices

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