Cross-posted from the SMH blog:
Australian exporters are set to benefit from the spike in wheat prices, as ongoing concerns about the crisis in Ukraine, supply delays in the Americas and fears about the United States’ winter wheat production lift the commodity to its strongest yearly start since 2008.
Wheat prices have surged by more than 13 per cent this year, and soared to a new high for 2014 on Monday. Chicago Board of Trade (CBOT) May wheat rose to US692.75¢ per bushel on Monday.
“There’s a lot of balls up in the air and no one has any confidence precisely in the way they are going to land,” CBA agricultural commodity strategist Luke Mathews said.
“The reality is the market as we sit here today has built in a significant risk premium, recognising the uncertainty that exists.”
The Crimea crisis has boosted wheat prices as Russia and Ukraine are the world’s fifth and sixth largest wheat exporters in the world, and make up 20 per cent of global wheat and corn exports, Mr Mathews said.
“Obviously, there’s significant concern that any escalation in tensions within the region could disrupt the flow of grain out of Russian and Ukrainian ports, and therefore contribute to a near-term shortage in grain markets.”
But there have been no disruptions in grain exports from the two countries so far, Mr Mathews said, adding that “exports have continued at a very rapid pace even with these tensions rising”.
“That said, the market is still trading off the perception that perhaps disruptions could occur in the future.”
It is interesting that this is yet to impact iron ore prices. Ukraine exports 40 million tonnes per annum through ports just as likely to be disrupted. Australia exports roughly 25 million tonnes of wheat so a 13% price jump is useful.
