Wheat price: is the US drought pushing up prices even more?

• Drought in large parts of the USA threatens the wheat harvest
• Rising food prices continue to drive inflation
• Wheat prices are exploding worldwide

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There is a drought in the southern plains of the USA: The wheat in south-western Kansas is threatened by the almost complete lack of precipitation since October. In addition to Kansas, the most important wheat-growing region, three-quarters of the fields in Oklahoma and more than two-thirds in Texas are also acutely threatened by drought. The winter wheat planted in autumn needs enough soil moisture, especially in the current growth phase, to be able to sprout in spring. In recent years, the wheat harvests have been poor due to drought. However, this year’s crop forecast is so poor that fewer sales contracts can be secured ahead of time because expected volumes are unlikely to be sufficient to fulfill the contracts, a Kansas farmer told Reuters. The farmers could not benefit from the high prices either, because prices on the international grain exchanges rose by more than 25 percent at times.

The war in Ukraine threatens supplies

Due to heavy rainfall during the sowing of winter wheat, the world’s largest wheat producer, China, is expecting the worst grain harvest ever this year. Of course, in addition to the drought in the US and poor harvest forecasts for Chinese wheat, the war in Ukraine is threatening global supplies, with Russia and Ukraine producing around a quarter of the world’s wheat exports. Russia alone exports 17 percent of wheat, mainly to Turkey and Egypt. With 8 percent of wheat exports worldwide, the Ukraine is considered Europe’s granary and is completely absent due to the war. In order to cover domestic needs, wheat, rye and barley may no longer be exported from Russia until June 30th. A ban on wheat exports to the countries of the Eurasian Economic Union had already been issued until August.

Rising food prices in Germany

The crop failures and the war in Ukraine are driving up food prices in general and the price of wheat in particular. Timo Wollmershäuser from the Munich economic research institute ifo sees rising food prices as the main driver of inflation in Germany. Food prices will rise by an estimated 7 percent in 2022 compared to the previous year. At the same time, more than 60 percent of food manufacturers have announced price increases, the highest level since reunification. The ifo Institute has raised its forecast for inflation to 4 percent.

The price of wheat explodes

The Russian export ban becomes the “turning point of the markets” in Europe, as the industry journal Agrarheute writes: Prices are exploding. The wheat price initially fell in early 2022. However, due to the loss of Russia and Ukraine in the common European market, the price of wheat has exploded, and an end to the price increase is not yet in sight.
While enough wheat is grown in Europe to meet demand, many African countries face a massive food shortage. UN Secretary-General António Guterres has even warned that a “hurricane of hunger” could occur.
According to a report by Reuters, India, on the other hand, is trying to take advantage of the international crisis and secure additional market shares on the international wheat market. The second largest wheat exporter after China wants to increase its export volumes to 10 million tons, which would mean an increase of 40 percent.

Editorial office finanzen.net

Image sources: Valentina Proskurina / Shutterstock.com, Istockphoto