Ukraine crisis driving up wheat prices

03/03/2014 5:51 PM

08/08/2014 10:22 AM

The crisis in Ukraine has roiled financial markets and hurt investors all over the world, but at least one group might see some benefit: farmers still holding on to grain from last year.

Wheat prices, which had been trending downward for nine months, have risen sharply at the prospect that the crisis will affect wheat exports from Ukraine and Russia.

On Monday, the cash price for wheat at Garden Plain Coop ended at $6.84 a bushel, up 4 percent from $6.58 on Friday.

“Phones have been busy this morning; we’ve been purchasing quite a bit of grain,” said Terry Kohler, general manager of Farmers Cooperative Elevator Co. in Garden Plain. “I didn’t realize that much was still around.”

Commodities broker and adviser Tom Leffler said he has gotten quite a few calls from farmers wanting to know whether they should sell. Leffler is a big believer in taking sure profits instead of gambling on a big win.

Too many farmers are waiting, he said, hoping prices will keep going up.

Some, he said, hung on to grain last year in hopes of rising prices – and were burned as prices fell in the fall. Now, he said, they’re determined to wait until prices return to the levels of last summer so they can say they didn’t make a bad decision.

Whether prices go up or down depends on how the crisis plays out, said Arlan Suderman, a senior market analyst with Water Street Solutions. Investors and analysts will bid prices up and down daily based on the scraps of news coming out of Russia and Ukraine.

“We’ll have a lot of volatility,” Suderman said. “Although I think the initial reaction was the strongest change.”

As of now, the grain is still flowing out of the region, he said. Scenarios range from Russia withdrawing its troops from Ukraine and prices falling back to normal to a loss of the grain to world markets because of a war or an embargo. As long as the risk of market interruption appears to be increasing, prices will rise, he said.

The reason, he said, is that world supplies of wheat and corn are actually pretty tight, even though markets have grown comfortable with that as global transportation systems have gotten sturdier over the past 10 years. The world has a 61-day supply of corn in storage, six days above a four-decade low, and a 95-day supply of wheat, 20 days more than the four-decade low.

So, Suderman said, if a significant wheat- and corn-producing region is shut down, supplies will tighten immediately, causing prices to rise.

He said Russia and Ukraine supply 19 percent of the world’s corn and 17 percent of its wheat.

Prices are also being pushed by speculators seeking to take advantage of the situation by getting out of equities and into commodities, which has pulled down stock prices in recent days and driven up the prices of grain, oil and gold.

“As long as there is aggression on the part of Russia, the market will err on assuming the worst,” Suderman said.

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