War-Strained Wheat Market Faces Moment of Truth

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Advisor Perspectives
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The strained global wheat market is entering crunch time.

July is a crucial part of the year because it’s when harvests start in much of the Northern Hemisphere and exports accelerate. The invasion of key producer Ukraine has already crippled its sales and attention now turns to how the war will affect the new season’s shipments and how well other countries can plug gaps.

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Ukraine has resorted to exporting whatever it can by rail and river with sea ports blocked. Meanwhile, Russia is about to reap one of its biggest-ever harvests, though war-related logistical and financial constraints remain key questions about how much it can sell.

The sales pace from the Black Sea — which historically makes up a quarter of global trade — may be in focus more than ever. Despite slumping recently, wheat prices are much higher than normal for the time of year. That’s contributing to food inflation and prompting world leaders to pledge to do more to fight a hunger crisis.

“We in grains have never traded a war market before, so this is all new,” said Dan Basse, president of Chicago-based AgResource. “The Russians are going to have a situation where they’re going to export wheat, but it’s not going to be as easy.”

Wheat shipments from top exporter Russia have remained largely normal since it invaded Ukraine, going to traditional customers. With new crops rolling in, the coming months will show whether it can sell the big volumes usually seen when exports peak.

Ukrainian export prospects remain bleak for now. There has been little progress toward restarting seaborne trade, terminal closures threaten to limit grain shipments to less than half their potential and Russian strikes have damaged crop facilities at ports. Volumes in June were 44% below last year.

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