Grain prices were already rising before Russia invaded Ukraine, and recent days have seen unprecedented further gains as two of the world’s biggest producers are at war.
Wheat closed in Chicago at the highest price ever on Monday. Benchmark corn and soybean futures have each surged by 26% this year. Those kinds of increases in food-staple commodities have been associated with social unrest throughout history.
“Remember, bread riots are what started the Arab Spring, bread riots are what started the French Revolution,” said Sal Gilbertie, CEO of Teucrium, the largest U.S. exchange-traded fund issuer focused solely on agriculture funds. “It is a biblical event when you run low on wheat stocks. You won't see a global food shortage. Unfortunately, what you're going to see globally is that billions of people might not be able to afford to buy the food."
Gilbertie doesn’t think the world will run out of wheat — but prices could continue to rise, and that will be most problematic for vulnerable global populations. “Ukraine dominates what they call the sun-seed market,” he said. “Sunflower oil is a major component of cooking oil and food, and you see palm oil rising, and soybean oil rising. That is a big deal, especially for the poorest of the poor, where cooking is a big part of the daily budget.”
Global food prices rose to a record high in February, led by vegetable oil and dairy products, according to the United Nations Food and Agriculture Organization.
Let’s bring it back to wheat as an example of the impact of the war in Ukraine and sanctions on Russia. According to the same organization, Russia was the top exporter of wheat by metric tonnes shipped in 2020 and Ukraine the fifth largest. By contrast, China and India top Russia when it comes to production — but consume most of the crops domestically.
Sanctions imposed on Russia by many nations now means wheat already harvested and stored there isn’t being bought.
As for Ukraine, the market has adjusted to the probability that wheat harvested and stored last season won’t be shipped, Gilbertie said. What’s now in question is what happens to the wheat currently in the ground. It’s mostly winter wheat, he said; it’s planted in autumn, then sprouts, grows and is harvested in spring.
“What the market’s trying to do is price in the potential of there not being a harvest season for wheat, and not being able to get the wheat out of the fields and/or shipped out of Ukraine,” he said.
Crops like sunflower and corn are planted in spring, so it’s unclear whether farmers will be able to plant at all, between the Ukrainian war draft, the invasion itself, and supply shortages of fuel and fertilizer.