The laws of the market! The war drives down world wheat prices

The war emptied the coffers of both Ukraine and Russia. Perhaps less clear is the impact on the global grain market, particularly wheat. This is important because wheat prices are now artificially low and could come back at any moment and push inflation up again, Forbes writes.

It is noted that both sides of the war, which are active players in the wheat export market, are now selling it at prices below cost.

"Something needs to change to prevent Ukraine and Russia from keeping wheat prices low, which makes no economic sense as both countries continue to fund military spending,” said Sean Hackett, author of the Hackett Commodities Report Money Flow.

According to him, this is happening because Ukraine and the Russian Federation know that getting cash now, even at the expense of economic losses, makes some sense. This is because money can buy spare materials needed in times of war.

To stop the process of selling grain at discounted prices, government restrictions are needed or producers themselves must abandon the idea, Hackett wrote.

Before the outbreak of war in late February 2022, wheat exports from Russia and Ukraine accounted for 29% of the market. That share has now fallen to 14.3%, according to the World's Top Exports website. At least part of the decline is due to the need to offer lower prices to fill government coffers. However, this is partly due to the lack of labor and other resources for growing the crop, the expert emphasizes.

According to him, the current situation on the wheat market cannot last forever. Ultimately, growing wheat at a loss will bankrupt the farmers.

However, the weather can have an effect. First, there is likely to be a late frost in the first two weeks of May. Such an event would likely hurt yields by reducing wheat supply. There are also concerns that a key developing region in southern Russia near the Black Sea is suffering from dry weather that could worsen.

Wheat recently traded at $5.62 a bushel, according to Trading Economics. That's down from a peak of $7.57 reached last July.

"If the US or Russia are affected by the forecasted adverse weather, experts expect the price of wheat to return to growth after several months of decline. If both happen, then we should expect even higher price growth. Of course, the weather is difficult to predict, so investors should be prepared to change tactics, the article says.