The situation on the wheat market is conducive to price increases

World food price inflation remains a major concern as the supply of many key food products continues to become increasingly constrained. This is due to concerns about weather conditions, as well as the war in Ukraine, which is the main factor behind the significant increase in the prices of wheat and cooking oils. While speculative deals may have already peaked, historically, the market is in desperate need of an improvement in the weather in Europe and North America as well as an end to hostilities in Ukraine.

Food supplies severely limited

World food price inflation remains a major concern as the supply of many key food products continues to become increasingly constrained. In the context of concerns over weather conditions, as well as the war in Ukraine, there is growing concern about the reduction of supplies before the onset of winter in the northern hemisphere.

About the Author

Ole Hansen, head of department of commodity market strategy, Saxo Bank. Djoined a group Saxo Bank in 2008. Focuses on providing strategies and analyzes of global commodity markets identified by foundations, market sentiment and technical development. Hansen is the author of the weekly update of the situation on the goods market and also provides customers with opinions on trading goods under the #SaxoStrats brand. He regularly cooperates with both television and printed media, including CNBC, Bloomberg, Reuters, Wall Street Journal, Financial Times and Telegraph.

The table below presents the most critical points; not surprisingly, wheat and cooking oils are showing the highest levels of stress and soaring prices. Both of these products have suffered as a result of Putin's war in Ukraine - a country that is the main producer and exporter of a number of key agricultural products - as the occupation has dramatically restricted the possibility of exporting production through the most important trading hub on the Black Sea coast.

According to one of the last ones information American Farm Bureau:

"Ukraine has six main products, the value of which exports more than $ 5,8 billion: corn ($ 5,7 billion), sunflower seeds ($ 5,1 billion), wheat ($ 1,7 billion), rapeseed (1,3, $ 1,2 billion), barley ($ XNUMX billion) and sunflower meal ($ XNUMX billion). "

Given the difficult market conditions and rising prices, governments are increasingly taking measures to protect domestic supplies to curb food price inflation. Recently, she was such a country Indonesia, which has banned the export of palm oil, in part because of the rising prices of sunflower oil; India followed suit by unexpectedly restricting wheat exports. This came just weeks after analysts had forecasted Indian wheat exports to almost double from the record highs in 2021. However, last month's heatwave contributed to a drastic reduction in the latest wheat export forecasts, with news released yesterday that India also plans to limit sugar exports to 10 million tonnes in the current season ending in September. Such action is seen as extreme caution, taking into account current production forecasts and available stock levels.

READ: HOW TO INVEST IN WHEAT? [GUIDE]

Problems with sowing wheat

Weekly Monday's release from the US Department of Agriculture on crop progress and growing conditions in the US highlighted the uncertain situation in the US wheat market. While sowing corn i variety speed has gathered, forecasts for spring wheat are still problematic - so far only 49% of wheat has been sown, up from 93% a year ago and the sowing rate is the slowest in 20 years. In addition, the drought had a negative impact on the quality of winter wheat, which will soon be harvested in the United States, and according to the latest research by the US Department of Agriculture, only 29% of wheat was rated as good or very good quality, compared with 48% last year.

Half of America's protein-rich spring wheat is grown in North Dakota, and after last month's second wetter and eighth coldest April in history, the fields were exposed to regular rainfall, which did not provide the right sowing conditions.

Speculators get more active

In the week leading up to May 17 speculative investors and funds raised their positions assuming the price of wheat traded on the Chicago Stock Exchange to a 14-month high, but with "only" 26 lots, the price impact remains relatively small. Overall, however, exposure to the six major grain futures quoted in Chicago remains large at 586k. flights with a nominal value of $ 683 billion, most of which are corn (37 flights) and soybeans (340 flights). Over the past 147 years, long net position has only four times exceeded 20 thousand. flights - the last two cases took place in January last year and just five weeks ago. In the first three cases, prices fell to such an extent that net long position returned to zero in two cases, while last year saw a reduction of 800%.

Whether or not history repeats itself depends on the weather conditions in the near term, not only in the United States but also in Europe, where a number of the largest producers, with France at the fore, are struggling with hot and dry weather. Ending the war in Ukraine would certainly also mean a correction in the agricultural crops market, however, due to the fact that this year's harvest has already suffered to some extent, unfortunately, one should take into account the risk of higher food prices in the longer term.