War in Ukraine continues to cause havoc in wheat market

Recent aggression in the war between Ukraine and Russia propelled roller-coaster wheat prices last week.

Mark Welch, Ph.D., Texas A&M AgriLife Extension Service grain economist, Bryan-College Station, said continued conflict and/or escalation is likely to further contribute to volatile global wheat prices and influence U.S. production in 2024.

Russian and Ukrainian farmers in that region produce one-third of the world’s wheat supplies, and the conflict has created a volatile grain market since the war began in late February 2022.

Recent actions by Ukrainian and Russian forces have impacted agricultural and shipping infrastructure. Russia withdrew from a tentative agreement that allowed Ukrainian grain exports to move out of the Black Sea and signaled it would treat ships around Ukrainian ports as military targets.

Welch said some Ukrainian grain shipments have continued to move overland and out of ports, but those exports were down significantly. Meanwhile, Russia is exporting record amounts of wheat.   

This escalation led to wheat price spikes that have levelled off somewhat, Welch said. Wheat prices are still below their peak of $13 per bushel following the Russian invasion of Ukraine, but the recent volatility underscores the ripple effect the conflict continues to have on global markets.  

“There is a lot of uncertainty for global grain in the middle of this war,” he said. “Interruptions of supply created a bump in prices and bumps create opportunities for domestic wheat farmers.”

Wheat prices, production and contracts

Most Texas producers with wheat were likely locked into price contracts before harvest that began in May in South Texas — and many were wrapped up in northern parts of the state like the Panhandle, Welch said. Some Texas producers with non-contracted stored grain may have been in a position to capitalize on the price spike.

Welch said many producers lock in a price during the season, while others contract percentages of their crop before, during and after harvest in the hopes of better prices.

While Texas, Oklahoma and Kansas are winding down harvest, while other major wheat production states are still harvesting. Drought has impacted major wheat production areas, including northern Oklahoma, eastern Colorado, Kansas and Nebraska. 

Texas and U.S. wheat producers should prepare for potential price volatility based on weather and war, Welch said. The El Niño weather pattern should increase optimism for Texas wheat, though drought conditions appear to be expanding in recent weeks.

Additionally, he expects high wheat prices and tight global supplies will incentivize increased wheat acres this fall. A bigger wheat crop would likely trigger lower prices in 2024 compared to 2023, but the destabilizing impact of the war could continue to influence the market.

With the U.S. producing only about 7% of the world’s wheat, Russian exports will have a big influence on price, as they have filled the supply gap for Africa and the Middle East.

Russia continues to leverage its position, but that could change, Welch said.

“The world is going to trade on what Russia does or doesn’t do,” he said. “If the war continues and they cut exports or have a short crop domestically, it could really impact global supplies and prices.”

Planning for price volatility

Welch said the market volatility should signal to Texas wheat producers to plan ahead for a potentially high-cost, high-risk market in 2024. With so many variables that could swing the wheat market one way or the other and high input costs, producers should look for savings and pricing opportunities.

Planning should start with soil tests, he said. Fertilizer residue left in the soil could save input costs. Growers should also not discount the technology available to them. Choosing wheat varieties that give growers the best yield potential in their location can reduce management costs and increase harvest.

Welch said he is hopeful growing conditions will improve this winter and next spring but producers should look for ways to improve their profitability.

“It’s going to be a high-cost, high-risk environment, so producers should be as efficient as possible,” he said. “Given the bad year we are coming out of, it’s a good time to evaluate planning for next year and look for marketing opportunities.”

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