Monday, August 15, 2022

Historic week for wheat as war sparks deepening supply fears

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This week will go down in wheat trading history. 

Chicago futures for the grain have soared 40% – the most ever – as Russia’s war in Ukraine upends global grain supplies. That puts prices at a 14-year high, and milling wheat in Paris reached an unprecedented 400 euros (R6 740 per ton). 

The war is stalling shipments from one of the world’s most vital breadbaskets. Ukraine and Russia together account for a quarter of global trade of the staple, used in everything from bread to couscous and noodles. The conflict has closed major ports in Ukraine, and severed logistics and transport links. Trade with Russia has also been stifled by the complexity of navigating sanctions and soaring insurance and freight costs.

That leaves grain importers flocking elsewhere, sparking “unprecedented” demand for spot supply, according to adviser Agritel in Paris. Corn is also nearing a decade high, and soybean oil reached a fresh record on Thursday.

“It is becoming almost impossible to display physical prices as they can vary from one minute to another,” the consultant said in a note. “Buyers have to face delivery defaults for Black Sea origins.”

Wheat futures jumped by the exchange limit in Chicago on Friday for a fifth straight day, rising 6.6% to $12.09 a bushel. Some forecasts point to prices moving even higher, and volatility in the options market has run wild.

The gains are accelerating global food inflation and raising concerns for countries reliant on foreign supply. That includes Egypt, which already had been struggling to maintain bread subsidies used by about 70 million people in the face of a pandemic. 

In another sign of the rising pressures, McDonald’s in Japan announced higher prices for burgers and chicken nuggets because of surging costs for ingredients, labour and transport.

The fighting in Ukraine also threatens planting of crops in the coming months. Farmers would usually be gearing up for sowing everything from corn to sunflowers and barley. The military invasion and hurdles securing inputs now pose a huge challenge.

Maize futures have leaped 17% this week, the most since 2008, and soybeans are poised for a 5% gain. Major crop importer China is moving to secure essential supplies in global markets. The country is said to have booked multiple cargoes of US corn and soybeans, Bloomberg reported

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