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Wheat prices have more to go as Ukraine war intensifies


Wheat prices are spiralling out of control as the conflict in Ukraine takes an ever-nastier turn. Since the start of the year Chicago-traded CBOT wheat futures nearly doubled to $11.34 a bushel from $6.02 and will continue to rise as the conflict disrupts exports from the world’s two top grain exporting countries.

Russia and Ukraine account for over a quarter of the total global wheat exports, which are mainly being shipped to Europe and the Middle East, and to a lesser extent China. Russia alone makes up roughly 18% of the global wheat exports. Although Russia’s exports to China make up only a small fraction of the country’s total wheat exports, China is already negotiating prices down in exchange for its support, or at least the absence of condemnation, of Russia’s invasion of Ukraine.

Aneeka Gupta, Director, Macroeconomic Research at WisdomTree noted The wheat market continues to remain tight owing to the escalation of the war between Russia and Ukraine. This week wheat prices have surged 40% as there appears to be no end in sight to the ongoing supply disruptions emanating from the war in Ukraine.

Ukraine will have deep impact on global wheat supply picture

Over the last week, apart from Kyiv and cities in the north of Ukraine, Russia has also been attacking Ukraine’s south, using Crimea as the launch pad for its offensive. It has already taken over at least one key port and laid siege to another as it makes its relentless way along the Black Sea coast.

Looking at the line of Russia’s attacks the country seems set to completely take over the south of Ukraine, linking up its positions around Mariupol, a port in the southeast, with Crimea, and extending them all the way to Odessa in the southwest, thus cutting off Ukraine’s access to its Black Sea ports and maritime export routes. Ukraine has two harvests per year, the first in June and July and the second one later in the winter. Even if there is a wheat harvest in Ukraine this year, which seems highly unlikely, Ukraine may not be in the position to ship the wheat to any of its clients.

At the same time international sanctions are taking a bite out of Russian wheat supplies as banking and financing restrictions are making it hard for global buyers to buy Russian wheat.

This will mostly affect Egypt and other Middle Eastern countries which depend on Russia and Ukraine for their grain supplies. Middle Eastern countries will struggle to cope with much higher wheat prices because low domestic GDP means that the man on the street will not be able to afford wheat at twice the price.

American farming can’t currently fill the gap

In the past such a rally has sparked widespread local protests across the region and has led to political instability. Egypt currently has enough wheat supplies for the next four months but plans to increase its own planting by an additional two million acres of wheat to compensate for the expected loss of imports. But even with the additional planting Egypt will only be able to provide for half of its wheat requirement. The pressure on Egypt’s government is rising to subsidise the ever-more expensive wheat imports and to also look at importing from other countries.

Looking at other wheat exporters such as the EU, the US, Canada and Argentina, they now account for just one-fifth of the global wheat inventories which at current consumption would last for less than a month. With global inventories at such a low level wheat is set for a major supply shock.

Rising wheat prices are also lending a tailwind to corn. Corn is also partly affected by the war in Ukraine as a fifth of the world’s corn exports come from the Black Sea region. According to the International Grains Council (IGC) Ukraine should export 32.5mn tons of corn this year. The ongoing escalation in the war could also make it more difficult to plant this years crop, added Gupta.

Explore WisdomTree Agriculture ETFs

Product Name ISIN Exchange Ticker Listing Currency
WisdomTree Corn
Hargreaves Lansdown | Interactive Investor AJ Bell Youinvest | Charles Stanley Direct | EQi
WisdomTree Wheat
Hargreaves Lansdown | Interactive Investor | AJ Bell Youinvest | Charles Stanley Direct | EQi

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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