By Swann Collins, investor, writer and consultant in international affairs – Eurasia Business News, March 15, 2022
Wheat prices rebounded sharply on Tuesday in the United States, fuelled by uncertainties over Russian supply, the war in Ukraine and fears of a rail strike at Canadian Pacific.
Thousands of workers at Canada’s second-biggest railway, Canadian Pacific Railway Ltd, have threatened to strike this week, potentially disrupting the movement of grain, potash and coal at a time of soaring commodity prices, reported Reuters.
After setting an all-time high of $14.2525 a bushel on March 7, SRW (Soft Red Winter Wheat), the most traded in Chicago, had melted more than 23% over the following week (the flour from this US wheat is used in making cakes, cookies, and crackers).
Wheat prices recovered sharply on Tuesday, gaining 5.29% to finish at $ 11.5425 a bushel on the most traded maturity, for delivery in May.
Uncertainty over Russian and Ukrainian exports is one of the reason of soaring wheat prices.
Russian authorities first said they were going to suspend wheat exports, and then they explained that they were going to honor (export) licenses within the quota limits. Uncertainty now prevails amid wheat professionnals.
The Russian Ministry of Agriculture had prepared on Monday a first document suspending exports of wheat, but also corn, with immediate effect, until June 30.
The Russian Federation from July 1, 2021 to March 10, 2022 exported 28.1 million tons of grain, which is 30.3% less than a year earlier (excluding exports to the EAEU countries in January-March). In particular, wheat exports decreased by 30.9%, to 23 million tons, barley – by 34.7%, to 2.9 million tons, corn – by 21.7%, to 1.8 million tons.
However, the Russian Deputy Prime Minister Viktoria Abramchenko then reversed the suspension on the same day, indicating that the government would continue to grant export licenses, within the limits of the quotas already set.
Earlier this year, Russia set its wheat export quota at 8 million tonnes for the period from mid-February to the end of June.
On Monday, the Ministry of Agriculture said that Russian wheat exports were down 30.9% year-on-year for the period from early July 2021 to March 10, 2022.
The export duty on wheat from Russia from March 16 was reduced to $ 86.3 from $ 86.9 per ton, announced the Russian Ministry of Agriculture today. These duties will be valid until March 22.
Since June 2, 2021, the Russian Federation has introduced a grain damper mechanism, which provides for floating duties on the export of wheat, corn and barley and the return of funds received from them to subsidize agricultural producers.
Operators also anticipate an acceleration in US wheat and corn exports to compensate for the shortfall generated by Ukraine, although this increase is not yet reflected in figures from the US Department of Agriculture (USDA).
Wheat prices were also driven by the prospect of a strike by employees of the Canadian Pacific Railway, which plays a major role in the transportation of agricultural raw materials in both Canada and the United States.
Canadian Pacific Railway transported more than 30 million tonnes of grain in 2020/21. A union, whose members voted in favour of a strike by an overwhelming majority, set Wednesday midnight as the start of the strike.
Wheat prices hit a record price at closure on March 4, reaching € 396.25 per ton on Euronext, for deliveries in March. The highest price in the day was € 426 per ton.
In November 2021, the ton of wheat was priced € 284 per ton.
The war in Ukraine since February 24 has disrupted global markets, which worry about surging oil and gas prices and soaring wheat prices, as wheat exports from Russia and Ukraine cover 30% of the world output. Now supplies from Ukraine, including by sea, are greatly disrupted. In addition, Western companies are reluctant to order grain from Russian companies. However, wheat shortages in global markets could provoke riots in fragile countries and deteriorate there the political situation.
Gilbert Houngbo, who heads the International Fund for Agricultural Development (IFAD), a special UN agency, stated on Twitter that :
“Conflict and hunger are closely intertwined. The situation in Ukraine could limit the world’s supply of staple crops, increase food prices, and exacerbate hunger.”
The IFAD considers that the fighting could limit the world’s supply of staple crops like wheat, corn and sunflower oil, resulting in skyrocketing food prices and hunger in low income countries. Thus, 40% of wheat and corn exports from Ukraine go to the Middle East and Africa, which are already grappling with hunger issues, and where further food shortages or price increases could stoke social unrest.
Read also : How to invest in gold
Gold prices reached today $ 1,943.70 per troy ounce and are now at $ 1,917.50 at 06:25 PM NY Time. Over the past 30 days, the price of the gold troy ounce grew by 3.09%.
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© Copyright 2022 – Swann Collins, investor, writer and consultant in international affairs.