Wheat Prices Soar Amid Ukraine-Russia Conflict Fears

The recent escalation in the war between Russia and Ukraine has sent shockwaves through the global wheat market, causing prices to surge by $A23 a tonne overnight.

This jump is not surprising given the significant role that Russia and Ukraine play in the world's exportable wheat and barley. Together, they account for roughly one-third of the world's grain trade, and any disruptions to their ability to move grain can have far-reaching consequences.

Grain movements through the Black Sea are already heavily disrupted due to attacks on Ukrainian ports, with dozens of vessels waiting around the Sulina Canal and only a small number able to move towards Ukrainian ports each day. This has created uncertainty in the market, leading buyers to worry about potential shortages and driving up prices.

While it is impossible to predict what will happen next, history suggests that wheat markets can be volatile and prone to sharp price movements. In fact, analyses of major wheat market peaks going back to 1990 show that the market rose by an average of around 40% in the year leading up to the peak, only to fall by around 37% the following year.

The lesson from these periods is that it is impossible to accurately identify the top of a rally. Wheat markets can turn very quickly, and growers need to be cautious not to become greedy when prices suddenly move in their favour.