Today, investors and traders appear to be pricing a “wheat shortage 2022” scenario into commodity prices. Specifically, the price of a bushel of wheat has surged to 14-year highs as the ongoing Russia-Ukraine conflict stokes fears of impending supply shortages.
This move in the futures contracts for wheat follows similar moves among other commodities. Oil is surging, as are other key commodity sectors. For investors concerned about rising inflation, this isn’t good. Similarly, expectations that interest rates will need to rise are also increasing. The 10-year U.S. Treasury yield has surged 15 basis points (bps) today.
Looking at this situation from a broader perspective, these price increases are very detrimental to expectations of future growth. As the prices of raw commodities increase, so too do expectations that prices on the shelves will increase in short order. For the average blue-collar working-class person, that’s not a good thing. And for the broader economy? It’s equally detrimental.
Let’s dive into what’s driving this commodities madness today.
Are Fears of a Wheat Shortage 2022 Justified?
As with other key commodities like oil and gas, which Russia happens to be a major supplier of, wheat is a key commodity that’s surging today. Recent sanctions put on Russia from much of the Western world mean Russian exports are likely to remain off the table for some time. For investors, this means that supply-and-demand fundamentals of many key commodity markets are about to change in a big way.
In addition to oil, Russia happens to be a key provider of grains to the global market. It helps supply around one quarter of total global wheat. What’s more, combined with Ukraine, the two countries produce approximately 30% of the global supply of wheat. Until Black Sea ports reopen, likely upon the conclusion of this conflict, it’s expected that this large chunk of global supply will be off-limits.
Accordingly, with more dollars chasing fewer bushels of wheat, this commodity has become a red-hot trading instrument in recent days.
Until the conflict nears its end, wheat futures are likely to have tremendous upside pressure. Barring some sort of major shift, the market is pricing in some serious unmet demand on the horizon.
On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
