Global grain and oilseed markets exploded after Russia invaded Ukraine.
In the first two weeks of the dispute, Chicago Board of Trade (CBOT) wheat harvested 79%.
With some of the risks of the crisis digested, at least for now, CBOT wheat has returned to just below 1100 US cents per bushel (as of March 15, 2022).
But that’s still 40% above pre-crisis trading and 100% above the five-year average.
Other major grains and oilseeds have followed to varying degrees, and the outlook is that these high – and particularly volatile – prices will continue at least through June.
For pricing in the second half of the year, we see three main factors.
These are: the supply of new crops from Ukraine; who trades with Russia; and if La Nina loses its grip on “the Americas”.
Most Ukrainian wheat and canola are winter varieties, about to emerge from dormancy.
However, the planting window for wheat, barley, corn and spring sunflowers in Ukraine begins now.
With high input costs and widespread uncertainty, it is unclear if these crops will be planted.
And whether crops – spring or winter – are harvested, is also uncertain.
Failure to sow Ukraine’s spring crops would create a 60 million tonne hole in global grain supply in 2022-23.
This could reach almost 90 million tonnes if winter and spring crops cannot be harvested.
Although it is unlikely that any Ukrainian spring crops will be planted or harvested, the longer the conflict drags on, the lower the supply of new crops will be.
This supply uncertainty will keep the price of risk in the markets towards and into the second half of 2022.
For Russia – with no conflict-related impediments to planting or harvesting and ready availability of key inputs – the supply of new crops is not the concern, but rather whether it will be available on world markets and who will buy it.
Russian wheat is heading to the Middle East and North Africa (MENA) region and – with prices so high, the ruble so devalued and food security a concern in this region – we know that a part of the supply will continue to achieve this in some way.
But the big question is whether China will take significant volumes from Russia – something it could easily accept, despite freight issues.
This would come at the expense of imports from Australia, the United States and South America and reduce pressure on global grain markets in the second half of 2022.
And then there is the still active La Nina system.
While indicators show it has passed its peak, and all but one global model shows a dissipation of the La Nina weather pattern by July, dry conditions are reducing crop prospects in Argentina, parts of the Brazil and the southern United States.
If La Nina loosens its grip, we could see some pressure on the markets in the second half.
But, if not, there will be more upward pressure on prices.
These three factors could significantly alter the trajectory of grain and oilseed prices later this year.
But even before Russia invaded Ukraine, supply chain challenges related to COVID, poor harvests, additional demand and low stocks had grain markets that were not often met.
So whatever happens with Ukraine’s upcoming harvest, China’s buying and La Niña in the “Americas”, we expect world grain prices to trade at least 45% above of the five-year average in the second half of 2022.