The merchant ship Razoni departs from the port of Odessa.
The price of wheat has dropped from its peak after Russia invaded Ukraine, but experts say one of the most consumed foods in the world continues to be in short supply and warn that a global hunger crisis could still occur.
Like oil, steel, beef and other commodities that are part of the economy, the price and availability of wheat varies based on a complex set of overlapping factors, such as geopolitics and weather. While the fall in the price of wheat offers some respite for countries dependent on its import, that fall could dissuade farmers from planting more.
Nor does the drop in prices solve pre-existing problems, aggravated by the war between two of the world’s largest producers. Energy prices remain high, affecting the operating costs of agricultural machinery and the transport of grain to the market, as well as in the cost of fertilizers.
In addition, the hot and dry climate, which reduces yields, is becoming more and more frequent.
“The fundamental picture has not changed”said Ehsan Khoman, head of emerging markets and commodities research at Japan’s Mitsubishi UFJ Financial Group. “There is a possibility that the price of food will spiral out of control.”
The grain market this year was shaken furiously. The Russian invasion of Ukraine has skyrocketed food and fuel prices, while war and sanctions have disrupted shipments of two of the world’s leading agricultural and energy exporters. According to the United States Department of Agriculture, both countries account for about a quarter of the world’s grain exports.
The price of oil has dropped slightly since the start of the war, although it still costs Americans to fill up on cars since the beginning of the year, the same as it costs Europeans to heat their homes with natural gas or almost anyone else to do anything related to the cost of oil. The price of wheat, however, fell to the level of the beginning of the year.
Problem. Grains stored in Ukraine risk seizing power (Reuters)
The price of a widely traded type of wheat that started the year at around $ 7.70 per bushel jumped to $ 13 just after the Russian invasion of Ukraine in late February, according to futures contracts traded in Chicago. the world center of this commodity. The price generally remained in the double digits until mid-June when it started to fall. On Friday, wheat was trading at just over $ 8 per bushel.
After the initial shock of the invasion, rising prices discouraged some countries from buying wheat, reducing demand and affecting prices. Increased supply from winter wheat crops has also pushed prices down in the last weeks.
One of the main factors that has lowered the price of wheat is the progress of negotiations for the fate of more than 20 million tons of wheat trapped in Ukrainian ports of the Black Sea. Just over a week ago it was agreed to open a export corridor that allowed the departure of part of the cereal immobilized by the war. And yesterday the first ship to Lebanon left Odessa.
The deal may not hold up amidst the fighting, and even if it does, heExperts say that’s probably not enough to solve other problems facing the world grain market. “This deal was presented as a solution to the global food shortage, but it is not,” said Tracey Allen, agricultural commodity strategist at JPMorgan Chase & Co.
Agreement. Grains on flags of Russia and Ukraine after the deal (Reuters)
Other more fixed factors affecting the grain market, from the price of energy and fertilizers to climate change, could play a more important role in determining the cost – and availability – of a loaf around the world.
Experts believe wheat prices could rise again. Adding to the uncertainty is the fact that futures contracts work to allow buyers and sellers to agree on a price for grain delivery in the future, typically within three months. And many things can change in three months.
“Prices will continue to be higher and consumers will notice this in the price of the products they buy on supermarket shelves,” Allen said.
Climate change is making wheat crops less predictable. The 2021 drought meant that, even before Russia invaded Ukraine, global food markets were under pressure. Although some regions, such as Argentina, have had bumper harvests and Russia is expected to have a good harvest this summer, the intense heat and low rainfall have affected the amount of wheat others have been able to grow.
Collected. Despite the war, grain cultivation continues in Ukraine (Reuters)
Andn Canada, temperatures hit records. At the end of July 2021, nearly three-quarters of the country’s arable land was classified as abnormally dry. Canadian wheat production fell by nearly 40% from 2020 to 2021, causing its exports to Latin America and the Caribbean to drop by more than 3 million tons, according to the United States.
The reduction in global supply due to bad weather had already contributed to the price increase earlier this year. In January 2020, wheat cost 30% less than today.
The price of oil largely determines the cost of operating agricultural machinery and grain transport. The price of natural gas is even more important to farmers because nitrogen, which is used to make fertilizers like ammonia and urea, is produced from natural gas.
“It’s not just the price of cereals, but also the transportation costs, fuel prices, fertilizer prices, etc.,” said Luiz Eduardo Peixoto, an emerging market economist at BNP Paribas.
Russia, the world’s largest producer of fertilizers, has limited gas to Europe, which has not only raised fuel prices, but also the cost of fertilizers. “The problems facing the food markets have not been solved,” said Khoman of Mitsubishi UFJ Financial Group. “There is still a shortage”.
The New York Times. special
Joe Rennison
Source: Clarin
