Supply Chain Blues: An Update on the Global Wheat Market
As the Russian invasion of Ukraine continues, one thing is clear… the global supply chain as we know it is crumbling. Russia and Ukraine are among the largest global producers of wheat, threatening countries around the globe with severe near term shortages as a result of sanctions and port blockades.
Following market prices for wheat only captures one small portion of the unfolding drama. Market prices have a cap that manages the rise in global price per bushel, much like our stock market can only fall so far per day. Rapidly rising costs for inputs such as fertilizer and herbicide further exacerbate the volatility seen in the market. Meanwhile, sharply higher fuel prices mean that the cost of transporting grain has risen significantly.
Before diving in, let’s lay some groundwork.
- Prior to the February 24th invasion, Ukraine and Russia produced about one quarter of the world’s export wheat (and a similar amount of the world’s barley).
- Ukraine grows and exports a significant amount of winter wheat which is harvested in June, as does Russia. Time is an issue.
- Russia has suspended exports of wheat to the EU until August 2022 and exports of wheat from Ukraine by ship through the Black Sea are being blocked.
- Differences in railroad gauges and other infrastructure issues severely impede volume exports of grain by land from Ukraine to the rest of Europe.
What does this mean for the North American grain market?
Time will tell. If harvest is disrupted in Ukraine, global prices will continue to climb steadily. This will present an opportunity for U.S. growers to plant more spring wheat in May, potentially displacing and reducing acreage of malting barley. Simply put, malting barley prices will be forced to mirror wheat prices or lose out on acreage.
Our friends at Root Shoot Malting are paying attention to these price increases, too. Get even more resources in their latest Field Notes.
What does that mean for the grain market in the Southeast?
While typically isolated, Southeastern grain growers will be able to access international markets as a result of supply chain disruptions. If strong wheat prices persist, growers will also shift acreage away from malting barley as we approach the October planting window. This will drive up contract pricing for malting barley bushels, which could trigger higher malt prices in 2023.
Where do we go from here?
Times like these are when we rely on our long-term relationships with our suppliers. Paying premium prices during periods of market stability builds trust. That trust translates into an honest and open dialog during periods of instability. Crop inputs, diesel fuel, and labor all enter the conversation as we work together to arrive at a fair price for a bushel of grain. Our mission has always been to pull growers out of the “hamster wheel” of geopolitical events, and this approach always bears fruit.
Stay tuned here on our blog for more industry news, and a field report about the 2022 harvest.
