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Higher Wheat Prices More Complex Than Ukraine Turmoil

March 24, 2014
By: Ben Potter, AgWeb.com Social Media and Innovation Editor google + 
wheat road
The road ahead for wheat depends on much more than the current volatile situation in Ukraine.   
 
 

A month-long rally has seen wheat prices trading north of $7 per bu. for the first time since last November. All fingers point to the unrest in the Ukraine – but that may not actually be the main driving force behind the market gains, according to U.S. Wheat Associates market analyst Casey Chumrau.

"There is little doubt that the market was factoring in some concern over the political situation in a country that captured 6% of the world wheat market in 2013/14," she says. "But, the primary fuel for a 15% increase in the Kansas City Board of Trade May hard red winter wheat contract in just 13 trading days include real fears about droughts around the globe, potential freeze damage in the southern U.S. plains and position changes by the big index funds."

For now, all signs still point to normal export operation in Ukraine, Chumrau says. The country has already shipped more than 76% of its 2013/14 crop, according to Global Trade Atlas. Plus, Ukrainian ports are located relatively far away from the current political situation. Also, a large percentage of Ukraine’s wheat exports are destined for feed use, Chumrau adds.

Even so, some reports indicate traders and customers will be hesitant to enter into new contracts for Ukrainian wheat, given current political and financial uncertainties, Chumrau says.

"If it persists, a perception of higher risk could affect the global supply and demand balance, particularly into the 2014/15 marketing year," she says. "Global supplies are already tight due to record-breaking consumption four of the past six years. As it is in the United States, the real concern for the new wheat crop in Ukraine and southern Russia is drought."

In the end, precipitation usually trumps politics, Chumrau says. And whatever happens overseas, the "U.S. wheat store is always open," she adds.

"U.S. wheat farmers have always produced enough wheat to supply the domestic market and still make half their crop available to the world," she says. "The U.S. wheat supply chain is always ready to help customers with both planned and unforeseen demands."
 

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RELATED TOPICS: Wheat, Spring Planting 2014

 
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