Global Wheat Prices Down by 20 Percent; Is it a Reprieve Yet?

After a series of months where wheat prices hit a decade high following the Russian invasion of Ukraine, future prices have slammed down by 20 per cent in the global market.

This is the lowest point since Mid-May 2022 that the front-month wheat futures on the Chicago Board of Trade in the US and on the Matif futures exchange in the European Union ever traded.

As of July 1^st, 2022, wheat commodities had dropped to $8.419(993.86 shillings) per bushel from a high of $13.11(1,547.64 shillings) in March 2022.

Some of the actors accelerating the reduction in the cost of wheat in the short term include:

1. Favourable weather conditions

According to Chief agricultural economist with S&P Global Commodity Insights, Paul Hughes, the weather has normalized, and the production outlook is improved. Moreover, there is the normal seasonal price pressure that comes from the Northern Hemisphere harvest of winter wheat that is underway.

2. Reduced Demand

Hughes further noted that demand for wheat has also taken a hit. About 20 per cent of the total production in a normal year is usually fed to the animals. However, the increased commodity prices compared to corn have minimized wheat feeding globally, thus cutting demand.

3. US Fed Reserves High Interest rates

The US Federal Reserve’s decision to raise interest rates has slammed investors’ expectations of inflation and caused money to flow out of commodities.

“In mid-April, investment funds held long positions in [agricultural] commodities above $55 billion. That long position has been cut by $20 billion and now sits near $35 billion. This liquidation has in itself hastened the decline.” Said Mr Paul Hughes.

4. Expectations Of More Produce

Australia, one of the biggest wheat exporters, is expected to produce a bumper crop in the coming months.

But does this trend mean a final relief for millions of consumers worldwide?

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According to a lead economist, Kenneth Scott Zuckerberg, global wheat shortages will linger for another two crop seasons.

Zuckerberg noted the continuing effects of the Russian invasion in terms of export restrictions on Ukrainian wheat and a high probability the country’s winter wheat crop would be much lower this year, resulting in tighter global supplies.

On the demand side, many of the Middle East and North African countries are facing a wheat deficit, so there is a likelihood they will buy in mass, and there’s only a limited quantity to go around.

Now, the projections that the wheat prices will be going even higher in the future are worrying, but what are other countries, especially in Africa, doing to ensure they can sustain the commodity.

In Kenya, for instance, wheat prices have shot up from about 39,295 per ton to 52,394 per ton.

Many traders have faced margin calls from their futures brokers, forcing them to transfer the burden by increasing the regular price in their commodity trading accounts to cover their losses.

A kilo of wheat is now ranging between 21.16 and 48.83 shillings. Wheat products such as wheat flour shot up to more than 200 shillings up from about 170 shillings three months ago.

With the ongoing conflict between Ukraine and Russia likely to continue, commodities prices will continue to the summit. The cost of essential commodities has been going up at a high rate than it has ever been experienced, thus pushing inflation rates to the highest levels in history.