Grains, and wheat, in particular, an indispensable input in all of our daily platters, have been in the news headlines over the past few weeks since the beginning of the rising conflicts between Russia and Ukraine, Europe's breadbasket. Fertile soil helped Ukraine and Russia to be harbingers in the food and agriculture industry. Ukraine is the second-largest exporter of barley grains, the fourth-largest exporter of corn, and the fifth largest exporter of wheat during 2019-2020. On the other hand, Russia is the largest wheat exporter in the world, and both Russia and Ukraine account for a quarter of the global wheat supply of 17.7 % and 3.6%, respectively, and a fifth of the global corn supply. Therefore, markets are experiencing a surge in commodities prices and in the prices of grains, in particular, with the rising political tensions alongside the existing drought that is already hindering the grains industry in top exporting countries; such as, the US, Canada, China, Brazil, and other nations; for example, 71% of the area where winter wheat is produced in the US is experiencing drought.
Global Wheat exports have decreased by 3.6 million tons due to the reduction of exports in both Russia and Ukraine. In order to offset the 7 M tons fall in the global exports of Russia and Ukraine, India is expected to increase its production by 1.5 million tons, while Australia is expected to increase its supply by 2.3 million tons to reach an all-time high total of 36.3 million tons.
The World Food Programme (WFP) has raised concerns on the impact of the war beyond the Black Sea on world food security. The Executive Director of WFP David Beasley said " Now we’re looking at a price hike that will cost us, in operational costs, anywhere from USD 60 M and USD 75 M more per month. And that means more people are going to go to bed hungry.”
Ukraine's top Wheat importers accounting for 17 % of the total importers, Egypt, Indonesia, Bangladesh, Turkey, and Tunisia, are being affected with their inflation figures increasing due to the increase in the food component of the basket of goods. The consumer price index (m-o-m) of Egypt, the top global wheat importer, increased by 1.5 % to reach 8.8% in February due to a hike of 17.6% in food costs, and it is expected that the inflation figure will surpass the 9% upper limit set by the Central Bank of Egypt (CBE), as well as it is expected that interest rates will increase in the country for the first time in 5 years.
Prices of different grains sprouted to historical levels since the beginning of the war. Wheat prices have reached 12.8725 USD/ Bushel making a new 14- year high which is close to its historical peak recorded during the financial crisis, as seen in the chart below.
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Wheat Prices USD/Bu (March 1997-March 2022)| Source: TradingView
If the war's impact persists in the long-term, it is expected that the price of wheat per bushels would reach a new high of USD 21/Bu adversely impacting those economies that rely on it, and disrupting the whole supply chain.
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