Futures file: the craziest week for the wheat market | Local
Most of the world is becoming aware of our dependence on Ukrainian wheat.
The price of wheat has seen record volatility this week. Severe drought problems, along with the Russian invasion, have many grain analysts predicting that Ukraine will not be able to harvest its winter crop and then sow its spring crop. A rumor that China might ask Russia to allow wheat cultivation to continue caused a temporary decline, reflecting some of the market sensitivity.
President Biden’s Friday announcement that the United States would join other G7 countries in imposing more sanctions and revoking Russia’s favored nation status also sparked an outburst of volatility.
Wheat farmers are quick to remind us that soaring food inflation is created by the costs of fuel, packaging and processing, but not much by the actual cost of the grain itself. Only 7% of the cost of a loaf of bread is attributable to wheat.
The range between the week’s high and low for nearby red winter wheat fluctuated between a high of $14.45 and a low of $10.31. On Friday afternoon, May wheat was trading at $11.05 a bushel, May corn at $7.57 and May soybeans at $16.75.
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War and inflation
The dramatic spike in oil prices, along with deficit spending associated with the invasion of Ukraine, contributed to food and fuel price inflation.
This comes just as our core inflation rate was already heating up beyond earlier expectations. The consumer price index jumped 7.9% through February, the fastest annual inflation rate in 40 years. Many analysts expect inflation to continue for years. The inflation rate topped 14% in 1981, serving as an example of what was possible with a much lower level of deficit spending than we face today.
The Russian invasion replaced headlines about the pandemic and climate change. As the news cycle continues, the stories could soon change for further virus outbreaks, record heat, flooding and other extreme weather, all of which could further fuel inflation expectations. . A quick end to the conflict in Ukraine, a permanent disappearance of COVID variants and a sharp drop in greenhouse gas emissions seem unlikely.
Hoping that all three will happen soon and simultaneously seems beyond the bounds of possibility.
Crude oil prices surged to a high of $130.50 a barrel during the week in the April contract. April gold traded at $1,989 an ounce, while May silver fetched $26.20 midday Friday.
Opinions are solely those of the author. Walt Breitinger is a commodity futures broker in Valparaiso, Ind. He can be reached at (800) 411-3888 or www.indianafutures.com. This is not a solicitation of a market order to buy or sell.