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Column | Futures File

Walt Breitinger: Wheat encounters volatility, Crude oil prices explode

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Wildest week for wheat market

Most of the world is becoming aware of our dependence on Ukrainian wheat. The price of wheat has encountered record volatility this week. Severe drought problems, along with the Russian invasion, have many grain analysts predicting Ukraine will be unable to harvest their winter crop and then unable to plant their spring crop. A rumor China might be asking Russia to enable wheat farming to continue caused a temporary dip, reflecting some of the market’s sensitivity.

Friday’s announcement from President Biden the U.S. would join other G7 nations to impose more sanctions and revoke Russia’s favored nation trading status also caused a burst of volatility. Wheat farmers are quick to remind us the surge in food inflation is created by the costs of fuel, packaging, and processing, but not much from the actual cost of the grain itself. Only 7% of the cost of a loaf of bread is attributable to wheat.

The range between the week’s high and low in the nearby red winter wheat fluctuated from a high of $14.45 and a low of $10.31. As of Friday afternoon, May wheat traded at $11.05 per bushel, May corn at $7.57, and May soybeans at $16.75.

War and inflation

The dramatic spike in petroleum prices, along with deficit spending associated with the invasion of Ukraine, has contributed to food and fuel inflation. This comes just as our core inflation rate was already heating up beyond earlier expectations. The Consumer Price Index jumped by 7.9% through February, the fastest annual inflation pace in 40 years. Many analysts are forecasting inflation continuing for years. The inflation rate exceeded 14% in 1981, serving as an example of what was possible with a much smaller level of deficit spending than we are facing now.

The Russian invasion has replaced pandemic and climate change headlines. As the news cycle continues, stories may soon change to new virus outbreaks, heat records, floods, and other extreme weather, all of which may further fuel inflation expectations. A quick end to the conflict in Ukraine, a permanent disappearance of COVID variants, and a sharp decline in greenhouse gas emissions all seem unlikely. To hope all three will occur soon and simultaneously seems beyond the bounds of possibility.

Crude oil prices exploded to a high of $130.50 per barrel during the week in the April contract. April gold traded at $1,989 per ounce, while May silver brought $26.20 midday Friday.

Opinions are solely the writer’s. Walt Breitinger is a commodity futures broker in Valparaiso, Indiana. He can be reached at 800-411-3888 or www.indianafutures.com. This is not a solicitation of any order to buy or sell any market.

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