Russian/Ukraine-Linked Agricultural Commodities Soar Placing Wheat and Corn Limit-Up

AGRICULTURAL COMMODITIES ANALYSIS

Russian invasion prompts spike in associated agricultural commodities prices.
Higher energy prices add to broad based gains.

AGRI COMMODITY FUNDAMENTAL BACKDROP

Key agricultural commodities impacted by the Russian invasion have rallied post-invasion as an already tight market is aggravated. Both Russia and Ukraine are key producers of wheat (29% of global supply), corn (19% of global supply) and soy products to the global market with many nation now contemplating tapping into government reserves to supply their domestic market in hopes of suppressing rising food prices.

Crude oil and natural gas continued its exponential rise filtering through to secondary agricultural commodities markets such as crude palm oil as the threat of swelling shipping costs reflect in market price action.

Inflation concerns will now ramp up and may become more entrenched than previously forecasted. Consensus amongst analysts pre-invasion was that the first quarter of 2022 would see the peak of inflation data but with the potential of a prolonged invasion along with sanctions on Russia, a systemic inflationary impact may ripple through markets well into 2022.

The effect of supply disruptions on the agricultural market comes at a time when food prices have been trending upwards as reflected by the FAO Food Price Index seen below post-COVID.

FAO FOOD PRICE INDEX

Source: FAO

What may be more alarming is the vegetable oil and cereal influence on global food prices which have seen comparatively greater price increases than areas such as dairy and meat. Global economic growth which has been limited and more specifically in Europe could be further softened, potentially leading to a stagflation-like environment.

FAO FOOD COMMODITY PRICE INDICES

Source: FAO

Exacerbating supply pressures, shipping from the Azov sea have been suspended although the operations from the Black sea remain operational. Should the Black sea follow a similar path, we could see additional upside pressure on commodity markets.

TECHNICAL ANALYSIS

CHICAGO WHEAT DAILY CHART