(Calgary) Experts say Monday’s spike in wheat prices is the result of Russia’s withdrawal from the Black Sea grains deal brokered by the UN over the weekend.
Posted at 10:16 p.m.
Wheat prices jumped nearly 6% on Monday morning on news that Russia would re-establish a blockade preventing grain shipments from leaving Ukrainian ports.
The move heightened fears about global food security.
The grain agreement allowed the safe transport of more than nine million tons of grain in 397 ships from Ukrainian ports despite the war in that country.
It also lowered world food prices by around 15% from their peak in March, according to the UN, and the UN secretary-general urged Russia and Ukraine to renew the deal when it will expire on November 19.
However, experts point out that it is too early to tell whether the price spike is a short-term reaction or the start of a longer and more sustained rise in wheat prices.
“Certainly the prospect of seeing more disruptions in grain and oilseed supplies from Ukraine is immediately putting some pressure on prices,” said JP Gervais, Vice President and Chief Agricultural Economist. at Farm Credit Canada.
“And if the markets feel that this is going to be a problem in the medium to long term, we could see prices go up. But I think it’s a bit too early to tell. »
By the end of October, wheat prices were down nearly 30% from all-time highs reached in the spring. At the time, there were fears that war could keep grain out of the critical export region of Ukraine, said Jon Driedger of LeftField Commodity Research, which provides market analysis for grains, oilseeds , pulses and other Canadian special crops.
“That’s how markets initially reacted and prices fell as grain started to come out,” Driedger said. So now, as you would expect, we are seeing wheat prices rise significantly again here at the start of the week. This is an initial reaction to what could be a decrease in grain movements from Ukraine. »
However, Mr. Driedger pointed out that there was still a lot of uncertainty about what the latest development really meant.
On Monday, Ukraine said a dozen ships had managed to set sail despite everything, including one carrying wheat to drought-stricken Ethiopia.
Canadian farmers — who have enjoyed significantly higher crop yields this season than during harvests in 2021 — stand to gain some benefit from this current price spike, Driedger said. Even though prices have retreated from their spring highs, they remain elevated by historical averages, he explained.
He noted, however, that farmers are by no means reaping windfall profits this year. If commodity prices are high, economic inflation means that farm input costs have also skyrocketed.
“Farmers have certainly benefited from it, but there’s no doubt that their cost of operation is much higher than it was,” said Driedger. The prices of fuel, fertilizers, the cost of machinery — all of those things are also high. »
On Monday, shares of Saskatoon-based fertilizer giant Nutrien closed at $115.11, up 2.69% — a stock move that was also likely directly tied to Russia’s withdrawal from the oil deal. grains,” Edward Jones financial services firm analyst Matt Arnold said in an email.
“It’s too early to tell if the pullback will impact fertilizer markets, but it’s fair to say that this news increases the risk of a drop in global fertilizer supply,” Arnold said. It certainly does not increase the likelihood of a bigger bid. »
Nutrien, which is the year’s biggest fertilizer producer, made a record profit of US$5 billion in the first half of this year as war in Ukraine destabilized agricultural markets.
The company is expected to release its third-quarter results on Wednesday, after markets close.