December 7, 2022
Nearly all wheat market reports list the Ukraine/Russian war as the number one determinant of wheat prices. The war has had, and will continue to have, a major impact on prices, but only because the war impacts the supply and demand of wheat. Other factors like weather may have as great or greater impact than the war.
Between June 2017 and June 2019, Oklahoma and Texas wheat prices ranged between $3.50 and $6 (Figure 1). COVID-19 had little impact on wheat prices until October 2020, which was about a 18 months after COVID started.
Table 1. World wheat production, use, ending stocks, Stocks to Use.
COVID’s impact on price resulted in prices going from about $4 to a peak of about $8 in November 2021. A $4 price increase ($4 to $8) would leave the impression that world wheat production had declined. In fact, world wheat production has set a new record high every year since the 2018/19 wheat marketing year (Table 1).
Wheat prices increased $4 during the 2019/20 and 2020/21 wheat-marketing years because of higher wheat use (Table 1). There was a marginal increase in use from the 2018/19 marketing year to the 2019/20 marketing year (0.4 billion bushels (Bb.).
There were relatively large use increases between the 2019/20, the 2020/21 and the 2021/22 wheat marketing years (27.4 Bb. to 29.2 Bb). The $4 price increase during the October 2020 to November 2021 was because of increased wheat demand (use). Higher use trumped higher production.
Russia invaded Ukraine on Feb. 24, 2021. The war reduced the supply of wheat on the export market by a potential 2.0 billion bushels per year (1.35 Bb by Russia and 0.66 Bb by Ukraine). The five-year average world wheat exports are 7.1 billion bushels. There was a potential 29% reduction of exportable wheat.
On Feb. 3, 2022, the Medford, Okla., wheat price was $7.37. Rumors of a pending war caused wheat prices to rise to $9.29 by Feb. 24 and peak at $13.13 on March 17.
By early July it was apparent that Russia and possibly Ukraine would export a percentage of their wheat and the wheat price declined to $8.13 in early July.
Also, the world’s transportation and handling system, which had been decimated by COVID, was nearly back to normal. The only part of the system not back to normal was the Black Sea area.
Some military analysts predict that the earliest the Russia/Ukraine war could be resolved is sometime in 2024. There is speculation that the war will continue for years. This implies that the current wheat market situation, war included, is “the norm” and that wheat prices will mostly be determined by the weather’s impact on world wheat production.
As shown by the decline in world wheat ending stocks and the world’s wheat stock-to-use ratios, the supply of wheat is tight. This implies we are in a “weather-market” and potential weather changes will impact prices.
It’s may no longer be “the war” that creates price volatility. Weather patterns may be the most important price factor to watch.
Figure 1. Medford Oklahoma daily wheat prices: June 2017 through November 2022.
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