Wheat surges to highest since 2008 on fears of supply shortage

Wheat prices extended their meteoric rally, soaring past US$11 a bushel to the highest level in 14 years, as Russia’s invasion of Ukraine brings shipments from one of the world’s biggest growing areas to a virtual standstill.

The war and the implications of sweeping US and European sanctions on Russia have upended Black Sea supplies at a time when global stockpiles are already tight. Ukraine and Russia ship more than a quarter of the world’s wheat exports, and the fighting has closed ports, halted transport and severed logistics. The war also threatens planting this year in Ukraine as farmers could be involved in the fighting, and seeds and fertiliser will be in short supply.

The shortages are likely to spill over to next season, or potentially even longer. Bumper harvests in North America and other parts of Europe will be critical this summer to curb more price increases. With flows from the Black Sea region snarled by the war, buyers are considering forward contracts for Australian grain as far out as the third quarter, said top shipper CBH Group.

Wheat climbed yet again by the daily limit on March 3, jumping 7.1% to US$11.34 a bushel. Prices have soared 50% in the past month. That has helped to lift the Bloomberg agriculture index to a record (see chart) and is fuelling global food inflation. This comes at a time when oil and other commodities are also rising, forcing central banks to tighten monetary policy after years of ultra-low rates.

Russia and Ukraine are major suppliers of corn, barley and sunflower oil too. Corn prices have risen to the highest level since 2012, while soybean oil and palm oil have reached records. In the meantime, China, the world’s biggest importer of corn and soybeans and one of the top buyers of wheat, is moving to secure essential supplies in global markets, pushing prices even higher.

Egypt, the largest wheat importer, is in a dire predicament. Russia and Ukraine delivered 86% of the country’s wheat imports in 2020, according to the United Nations, and the combination of war, fast-moving sanctions announcements and surging freight and insurance costs is hampering efforts to secure supplies. That carries extra resonance in this North African nation, where rising food costs contributed to the Arab Spring protests a decade ago. —