CME Wheat Futures Went Parabolic

CME wheat futures instantaneously jumped up about 8% as of the latest reading, reaching prices not seen since 2008. That represents a 27% surge since the start of the year. The higher prices of almost everything is certainly a reflection of increased geopolitical tensions which amplified the already existing abnormal inflationary processes. However, the agricultural futures are the second most important contracts after energy, because they affect everyone’s daily life since these elevated prices make wheat more expensive for food makers, who will likely pass those costs on to consumers.

Ukraine and Russia together are responsible for about 30% of global wheat exports, so let’s make no mistake: grain prices are expected to keep climbing up at least until some hints of a peaceful resolution of the ongoing conflict. Prior to the military operations, Ukraine was on track for a record year of wheat exports, while Russia's wheat exports were lower than in 2021, but still at satisfactory levels to keep the supply/demand ratio at bay. The military conflict, however, literally "paralyzed" Ukraine's agricultural chain from cultivation to shipping.

The war likely will drastically impact planting for spring crops like corn, prolonging the impact on supplies. Egypt canceled a second international wheat tender in less than a week, a sign of the growing impact on importers.

Commerzbank analysts wrote recently that "as much as 15 million tons of wheat exports from the Black Sea region could be at risk" of instant blockage caused by the sanctions related to the Russia-Ukraine-NATO conflict. Looking at the W_1:COM Front Month Wheat Futures chart, it’s easy to admit it went parabolic since February 22, and the demand, judging by the fact of meticulous stability of contract’s daily volumes and open interest (https://www.cmegroup.com/markets/agriculture/grains/wheat.volume.html), is very real there.