Tuesday, July 23, 2024

Our Bread and Butter

The commodities market has certainly not been spared volatility as a result of the Russia/Ukraine crisis. During the first week of March, the United States was deliberating whether or not to ban imports of crude oil from Russia as part of its sanctions package, thus sparking a week of turmoil for commodity prices. Brent crude futures soared up by 18% to $140 a barrel; nickel, which is needed in Electric Vehicles and batteries, leaped up by a giant 90%; European benchmark gas was up 79%, raising concerns about a potential energy crisis next winter; and the world’s food staple, wheat, skyrocketed by 41% in the space of seven days. The Ukrainian conflict was threatening to take a “very serious” toll on the world economy according to the IMF (International Monetary Fund).

Focussing in on wheat, Russia’s invasion led to the shutdown of Black Sea ports, which contributed to the price jumps. As Russia and Ukraine combined export about 30% of the world’s wheat, potential consequences of the wheat crisis are bound to be substantial. “The concerns over Ukraine will be largely related to domestic production as well as disruptions to export flows”, explained ING,  also pointing out that the winter wheat for 2022 was still in the soil, and the battle could interfere with farming procedures, which could diminish the quantities farmers will be harvesting next season. Moving on to corn, the time for spring planting was fast approaching in March, raising the question of whether the war would hinder this crucial process by prompting farmers to plant smaller quantities of corn and wheat due to the conflict. Russia is the second biggest producer of sunflower seeds in the world, but disruptions in the supply of sunflower oil might be made up by soybean oil. If you’ve got an eye on commodity trading as CFDs of major commodities like wheat, corn, or soybeans, keep reading as we take a closer look at what may lie ahead around the world.


Last year, the value of Chinese traders’ wheat stocks took a second seat behind corn, but near the year’s end, wheat took over again and was later buoyed by the Russian invasion and resulting sanctions. By March the report was that “Domestic wheat is rising like crazy. (The Ukraine crisis) has some play in it, but the fundamental reason still remains in the (domestic) supply-demand imbalance”, in the words of a manager quoted by Reuters. China had been auctioning its national wheat stockpiles for a year to keep prices under control. The potential positives of higher wheat prices could include improved turnover for farmers and revived local production.Last Autumn, however, heavy rains in China put off the planting of winter wheat, so “The domestic market was also worried about the quality and output of the new wheat crop”, addedLvFengyang of Mysteel.

Middle East

Once the invasion was underway, wheat importers faced serious constraints in making deliveries in the Middle East and North Africa (MENA). Shipping from Ukrainian ports was at a standstill. Nations in the MENA region rely strongly on the cheaper grain from the Black Sea area and “Remain some of the most vulnerable globally, given the dependence on wheat imports and high household spending on food”, explained Monica Malik of Abu Dhabi Commercial Bank. For example, Egypt imported 80% of its wheat from Russia and the Ukraine last year. From the invasion on February 24thuntil the first week of March, the price of wheat in Egypt was up by 23%, and flour by 44%. Lebanon faced a more immediate emergency, with wheat reserves extending only one month, while Moroccowas struggling to recover from one of its worst droughts in recent years. In addition, increasing wheat production in the MENA region faces the challenge of water scarcity and finding sourcesbeyond the Black Sea is expensive, spelling an uncertain future for the commodity trading sector.

Looking Down the Road

To give an idea of the importance of Ukraine to grain exports, the country was expected to send out 17% of the world’s corn supply this year and to be the third largest exporter of wheat, but within the first two months of 2022, wheat was up by 70%; corn by about 30%; and soybeans by over 25%, which are all significant numbers.

In Spring 2022, the expectation is that American farmers will be improving their grain plantings as much as possible. However, these “will not offset the full potential losses from these Black Sea producers”, judged ING. The CFD commodity trading sector shows signs it may not be short of fluctuations and volatility in weeks to come. Traders should keep in touch with the potential solutions to the wheat crisis in many parts of the world, which looks set to touch the United States where, “For the short and intermediate term, food inflation and the cost of baked goods… will go up more”, estimated Robb Mackie of the American Bakers Association. Stay tuned to live commodity trading rates on top commodities like wheat, corn, soybeans and more at iFOREX.

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