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Home » News » Commodities » OECD: Ukraine war likely to drive wheat prices higher by more than 19%

The OECD and UN Food and Agriculture Organisation presented their 18th annual global agriculture outlook in Paris this week, including projections out to 2031. The Armchair Trader sat in. These observations are useful in that they provide some perspective on the direction of key food markets in 2022-23.

The projections come at a time when food security is being challenged by the Russian invasion of Ukraine. Food prices have been steadily rising but the Russian blockade in the Black Sea has further exacerbated food shortages.

Wheat markets: outlook still uncertain

“The outlook is still uncertain,” said OECD Secretary General Mathias Cormann. “Global wheat production is projected to remain broadly stable over the 2022-23 period, but the outlook is marked by great uncertainty. Wheat prices could be 19% above pre-war levels if Ukraine completely loses its capacity to export. With food security under pressure, consequences could be dire. An immediate end to the war would be the best outcome all round.” He said wheat prices could grow by over 30% if Russia’s ability to export wheat is impeded by sanctions.

The OECD said export bans would create further problems for global market supplies, and drive prices up by more. “We need more trade, not less,” said Cormann. He also said agricultural subsidies were making farming more inefficient in many areas and contributing to some food shortages.

Qu Dongyu, Director General of the Food & Agriculture Organisation at the UN, said: “These price increases come on top of already high prices caused by disruption in logistics and high prices of the primary commodities. In March 2022 the FAO Food Price Index reached a record high, and is still very high compared with three years ago.”

Higher fuel and fertilizer prices playing a role

The FAO seems to be very focused on the impact of the war in Ukraine, as well as higher fuel prices and fertilizer prices. These latter two factors are feeding into other key soft commodity markets like corn and soy beans. “We hope that the war can be stopped and peace can be restored,” Qu said. “What happens next year? We need to look beyond the current crisis towards medium term fair development within the global commodity markets.”

The other big issue is how to make farming more sustainable, with less impact on the environment. Climate change and innovation within agriculture – e.g. to enhance productivity – are going to be key themes over the next decade. “There is enough food and energy available globally, but less incentive for farmers to produce more,” said Qu.

Policy innovation is going to become more important, as it is obvious that poor policy making is contributing to current high prices in food markets.

Pandemic hangover still a factor

A big worry is the decline in net trade within commodities, especially on an inter-regional basis. The pandemic has had a huge impact here, and according to OECD analysis while some regions are forecast to export a growing share of their agricultural output. Developed Asia looks set to remain a major importer and thus an arbiter of soft commodity prices.

Lee Ann Jackson, Head of the Agro-Food Trade & Markets Division at the OECD, highlighted that there has been a continuing downward trend in real prices for agricultural products. Tight global supplies and extreme weather events have played a role in pushing prices up, but the OECD is forecasting a flat price trend for most main soft commodities over the next five years and sees the current spike as essentially temporary. “This is good news for food affordability but will put pressure on farm incomes,” Jackson explained. “A predictable trading system is still important for food security.”

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This article is not investment advice. Investors should do their own research or consult a professional advisor.

Stuart Fieldhouse Editor

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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