Wheat prices have risen dramatically since Russian forces invaded Ukraine on Feb. 24, and war premiums have pushed values to exorbitant levels.
At the close of trading on March 3, the nearby Chicago May wheat contract finished at US$11.34 per bushel, after its third consecutive limit-up gain. Kansas City May wheat ended that day at US$11.5025/bu., also on a lock limit day. Minneapolis May spring wheat, which has lagged a little behind its winter wheat companions during the course of the week, sailed to a limit-up close of US$11.1825/bu.
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Both Russia and Ukraine are vitally important to the global grain trade. For the 2021-22 crop year, total Russian grain production was estimated at 113.7 million tonnes for fifth in the world, according to the International Grain Council (IGC). Production in Ukraine was pegged at 84.8 million tonnes, putting it among the top 10 producers in the world.
When it comes to wheat, Russia was projected to be the No. 2 exporter, at a projected 35 million tonnes for 2021-22, behind only the European Union at 37 million tonnes. Ukraine was expected to ship out 24 million tonnes, a little behind No. 3 Australia at 25.5 million.
Most wheat and other grains and oilseeds from Russia and Ukraine exit the Black Sea through the Dardanelles, into the Aegean Sea and then elsewhere. Russia’s invasion has cut Ukraine’s access to the Black Sea, while economic sanctions imposed by much of the international community have constrained Russian exports. That lack of availability sent wheat prices screaming upward day after day.
A little bit of influence in North American wheat prices came from dry conditions throughout the Canadian Prairies, along with the U.S. northern and southern Plains. In the southern Plains, winter wheat conditions have struggled to achieve 20 per cent good to excellent or better. The chances for continued dryness on the northern Plains and the Prairies will depend on the speed of the spring melt — at least in those areas that have plenty of snow.
Nevertheless the main driver is the war in Ukraine and will remain so for the time being.
There have been growing warnings that these steep increases could soon come to an end, with dramatic declines to follow. That is likely to come about with some kind of resolution to the conflict that would allow exports to resume by some measure. Until then, expect the spec funds to shove more money into wheat.
