Wheat Prices Soar As Supply Chain Disruptions Continue
April 6, 2022 | View PDF
Conflict between Russia and Ukraine has sent wheat prices soaring.
"The available supply to be able to trade is much lower than before, causing global wheat prices to explode," said NDSU's Crop Economist/Marketing Specialist, Dr. Frayne Olson.
The war is raising significant questions about the ability of Russia and Ukraine to continue exporting. U.S. prices have been supported with quotes for Hard Red Winter wheat and Soft Red Winter wheat, commanding the largest price increases (up more than 80% from 2021) as these classes are most competitive with Russian and Ukrainian wheat.
"We were looking at good wheat prices in the winter and all of a sudden war in Ukraine turned the wheat market upside down," added Olson.
These two countries are major exporters for wheat globally. For the past couple of years, Russia has been the largest exporter of wheat and Ukraine is one of the top three or four wheat exporters, depending on year.
When war hit Ukraine, they closed all ports and are attempting to export their product by railway.
"The problem is the railroads in Ukraine are wider compared to the railroads in western Europe, which are a lot narrower, so you can't use the same trains," he said. "The Russian ports are still operational, but the problem with getting wheat out of Russia is there are financial sanctions, and it is getting very hard to get paperwork completed to be able to buy and sell products out of Russia."
In addition to these trade issues, the countries are also having a difficult time shipping wheat overseas because the owner of the vessels are hesitant to send the ships into a war zone area.
As a large exporter, it is also a concern on how much wheat Ukraine can produce and harvest during the conflict.
Market specialists are seeing grain prices rebound, and some very high prices that are better than those from last year.
For example, according to the futures markets, a farmer would be able to sell grain for delivery at harvest for $6.20 on March 30, 2021, and now that price is $10.35 as of March 30, 2022.
When you see really high wheat prices, it is easy to get excited, but Olson wants to caution everyone.
"For every seller there must be a buyer. As prices get higher, the number of buyers get smaller and smaller."
The U.S. keeps half of its wheat and exports the other half. At a high price international buyers might say it is getting expensive and may not be able to afford it.
Olson advises producers to sell strategically. "Think about a price that you would be willing to sell more grain. You have to pick a number at what price level you would be willing to sell more and stick to that plan."
Throughout the summer, farmers should expect a lot of price volatility; prices are going to be moving up and down every day.
"We are figuring out a Plan B and Plan C on how to get grain moved around globally and making sure everyone has what they need. We will also be focusing on growing conditions in the U.S. and Europe as we move into the summer months. We will also watch what happens in Canada because they are also big wheat producers. We are going to need good weather and hopefully some really good production."