Blog: Wheat and War (02/27/22)

This week brought a rarely seen volatility in commodity prices, with wheat supply and demand front and center. The mid-week Russian invasion of Ukraine, the relentless shelling that accompanied it, and the widening of the assault’s reach all contributed. The first territory invaded by Russia includes some of the most productive and mineral-rich wheat soils on the planet, even better than Russia’s. Scenes of thousands of refugees fleeing to Poland or Hungary have raised fears that the global supply could be severely reduced. Ukraine and Russia together supply more than 60% of world wheat exports.

Wheat is the oldest and cheapest source of human food, with some evidence dating back to its production 20,000 or 30,000 years ago. Political upheavals and wars have been triggered throughout history by shortages of wheat, for example, the flour wars in France in the 1770s, the French Revolution, the flour riots in the United States in the 1800s, the Bread Riots in Egypt and the Arab Spring. Agricultural supply threats for grain and cotton have even affected our own American Civil War.

Most of the strong rise in grains faded or reversed entirely on Friday afternoon. The week’s massive volatility in beans, for example, saw the price explode to over $17.65 a bushel but fell almost two dollars by the end of the week. On Friday afternoon, May wheat was $8.60, May beans $1,585, May corn $6.58.

Crude blows over $100, then falls out of bed

Wars, such as Desert Storm, were also fought over oil supplies, and the United States was often involved. Russia’s invasion of Ukraine could affect our energy prices here. Sanctions against Russia, including Germany’s halt to approval of the Nord Stream gas pipeline, are a huge factor in energy supplies to much of Europe.

Crude oil rose to $100.54 a barrel on Thursday, but crashed to $90.00 just before Friday’s close. Natural Gas, Gasoline, Diesel, Gold, Silver all saw spikes higher on Thursday and steep declines on Friday. April crude oil traded at $91.15 a barrel near Friday’s close while natural gas for May delivery fetched $4.48 per million BTU and April gasoline 2.87 $ per gallon. April gold was trading around $1,890 an ounce, while May silver was trading at $24.10.

About Jimmie P. Ricks

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