Usually far less volatile than stocks or oil, agricultural commodities are now often subject to dramatic spikes and drops.
“The market does not know the nuance: either it’s war and it goes up, or it’s peace and it goes down,” said Gautier Le Molgat, analyst at Agritel.
Grain markets have turned around three times in less than 24 hours this week: first on the optimistic tone of the Russian foreign minister on Monday, then on the news of the transfer of the embassy from Ukraine by the United States , and finally on Moscow’s assertions of a military withdrawal.
The stakes are particularly high for wheat, with Russia being the world’s largest exporter and Ukraine the fourth, according to estimates by the United States Department of Agriculture (USDA).
Together, the two countries account for almost a third of the world’s wheat trade.
On the maize side, Ukraine ranks fourth among exporters and accounts for about 22% of trade.
To date, however, Russian military movements have had little effect on Russian or Ukrainian exports.
As world wheat prices rise, Ukraine has seen its own rates drop 4% in the past month, according to S&P Global Platts.
“If we stay in a simmering conflict, the volatility will stay in place and Russia and Ukraine will lose out,” Le Molgat said.
“Their currencies will depreciate and few will venture to buy from a distant source without guaranteed delivery.”
Ukraine is also the leading exporter of sunflower oil, followed closely by Russia.
“We have seen customers withdrawing from buying sunflower oil from Ukraine because they were worried about whether they would be able to deliver if they got involved in a military conflict with Russia,” said Arlan Suderman, chief commodities economist at StoneX. Financial.
However, according to Scheve, “over time, (such a latent crisis) would just be accepted because that’s the risk you face.”
“And then until the problem reappears, it wouldn’t necessarily drive prices up.”
He also pointed out that exports from Ukraine and Russia traditionally slowed in March, “so that might be less of a problem.”
– Blockade and embargo –
Those involved in commodity trading have the worst-case scenario in mind.
If a conflict erupts and Russia blocks the port of Odessa, Ukraine will find it difficult to export, Le Molgat said.
“In such a situation, one can imagine that there will be economic sanctions. The United States could thus decide to ban the trade of Russian wheat in dollars,” he said.
Apart from Ukraine and Russia, the countries most affected would be their biggest customers, namely Egypt, Turkey, Indonesia and Morocco, which would be forced to find wheat elsewhere, probably at a higher price. .
On the supply side, the European Union, the United States and Australia, the other major players in wheat, would be the big beneficiaries of the disruption.
The exceptional uncertainty and volatility of agricultural markets is a huge draw for investors. Earlier this month, the amount of wheat short positions (bets on lower prices) reached levels not seen since July 2020.
In recent days, Teucrium, which manages ETFs tracking agricultural commodities, has seen inflows from investors looking to take advantage of rising prices, chief executive Jake Hanley said.
A diplomatic end to the crisis or maintaining the status quo in Ukraine would obviously relieve the market, but prices could remain high.
Wheat and maize are currently 22 and 18 percent above their prices at the same time last year respectively.
The upcoming wheat crop in the United States is threatened by a drought in the southern plains, while corn crops are also expected to suffer from lack of rain in Argentina and Brazil.
“There’s been so much focus on Russia, Ukraine,” Suderman said, “that global markets have pretty much lost touch with some of the other issues around the world.”