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Why are global wheat prices rising so much?

 

Wheat jumped by the exchange limit to near a record high after India’s move to restrict exports, exposing just how tight global supplies are during the war in Ukraine and threatening to drive up food prices even more. The government will suspend overseas sales to manage its food security, according to a notification dated May 13. This drew criticism from the agriculture ministers of the Group of Seven nations, who said that such measures make the world’s crisis worse.

Benchmark futures in Chicago rose as much as 5.9% to $12.475 a bushel, the highest in two months and within about $1 of the all-time high set just after Russia’s invasion. Prices have surged around 60% this year, increasing the cost of everything from bread to cakes and noodles. In Paris, milling-wheat rose 5.1% to 431.75 euros ($450) per ton, a record for most-active futures. The surprising thing is that India isn’t even a prominent exporter on the world stage. The fact that it could have such a major impact underscores the bleak prospect for global wheat supplies.

Supply shocks

This assessment is almost entirely based on supply concerns: the shocks to global production and trade caused by the war between two important grain producers Russia and Ukraine; and the impact on prices of inputs, including fertilisers, which acts as a disincentive for their use by farmers, and therefore can affect yields.

These are surely important but are they sufficient to explain the really sharp increases in global food prices that have been witnessed over the past months? Consider the case of wheat, the crop that is most directly affected by the Ukraine war and the consequent disruptions.

Figure 1 shows how wheat prices have shot up astronomically over the past year. The average of three important wheat prices increased by 165 per cent between May 2021 and May 2022, with the bulk of the increase coming after February 2022.

In the case of US Hard Red winter wheat, the price increase was as much as 176 per cent over this same period. This rapid rise echoes the prices increases of 2007-08, the last global food crisis, when it subsequently emerged that financial speculation in the food markets was an important driver of the sharp increase and then decline after June 2008.

In the 2007-08 food crisis, one telltale indicator was that global supply and demand (estimated in terms of total production and “utilisation”) changed very little, and certainly not enough to explain the dramatic changes in prices that occurred over that period.

In fact, despite all the hype in the media and the finger pointing by some politicians, that is also the case today: the Ukraine war has definitely impacted production and trade, but not by all that much, and definitely not by enough to justify the dramatic price hikes that are being experienced.

Consider the evidence provided in Table 1, which are also from the FAO’s own projections. According to these estimates, the estimated global production of wheat in 2022 is likely to be lower than in 2021 by about 6 million tonnes. But that is a decline of less than 1 per cent, and global production in 2022 is projected to be around 2 per cent higher than the average of 2018-20.

U.S. Wheat Associates (USW) is the export market development organization for the U.S. wheat industry. USW promotes the reliability, quality and value of all six U.S. wheat classes to wheat buyers, millers, bakers, food processors and government officials in more than 100 countries around the world.

Its mission is to “Develop, maintain, and expand international markets to enhance wheat’s profitability for U.S. wheat producers and its value for their customers.”

Funding is made possible through checkoff dollars, goods and services from 17 state wheat commissions and cost-share grants from the USDA’s Foreign Agricultural Service.

USW does not buy, sell, or process wheat; we do help make it easier for everyone else who does.

To know more visit: https://www.uswheat.org/about-usw/

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