It has been a very long time since wheat prices were at their highest level. Data from the U.S. Federal Reserve and the International Monetary Fund show that wheat prices approximately quadrupled from their lows in September 2019 and their highs in 2022. While the price of wheat and other grains has recently begun to normalize a little, they still remain high. Perhaps more troubling for farmers and consumers, the variables that contribute to volatility in this important commodities market continue.
What is happening to wheat prices and the larger grain markets, then? Similar to other asset classes, the price changes cannot be explained by a single reason. However, in general, we are seeing a one-two punch of weather and war as the biggest underlying trends.
Prices Of Wheat
The concept of uncertainty also relates to the recent upheaval in Ukraine, which until Russia invaded the country at the end of February 2022, was the fifth-largest exporter of wheat, accounting for 10% of the global wheat market. Russia is a big exporter of wheat, which complicates matters further since even if its own farmlands have not been devastated by conflict, the Kremlin is nevertheless subject to international economic sanctions.
The ensuing supply shock and output uncertainties have drastically changed the world wheat markets. In the immediate aftermath of Russian intervention, global wheat prices jumped by nearly 20% in March 2022, reaching their highest levels since 2008 and continuing to climb in the months that followed to new records.
Looking At Other Grains Besides Wheat
Source- MARCA
The dynamics of weather and conflict also have an influence on other common crops, even though wheat is one of the most sought-after grains in the world.
Corn is a prime illustration. Consider that 15% of the global maize trade in the years preceding to the Russian invasion came from exports from Ukraine. And corn is actually the top crop grown on American farms in general.
But just as the effects of the drought and the unprecedented heat are having an impact on maize output, so too are they. In actuality, the increase in maize prices from their lows a few years ago to their recent highs is more drastic than the increase in wheat prices. As of July 28, corn futures had increased by 65% over the previous 24 months.
Another illustration is soy, which is a major crop both domestically and internationally. Despite a little decline in price from recent highs, this grain has had a considerable surge in price when compared to 2020 lows—roughly a 54% increase over the last 24 months.
