Wheat futures and related exchange traded funds surged Tuesday as a potential full-out conflict between Russia and Ukraine clouds the outlook on a major source of global wheat.
Among the best-performing non-leveraged ETFs of Tuesday, the Teucrium Wheat Fund (NYSEArca: WEAT) jumped 6.0%. Meanwhile, CBOT wheat futures were 5.5% higher to $8.485 per bushel.
“Given the current strength in wheat prices, an armed conflict between Russia and Ukraine, we believe, could help propel wheat futures prices back to retest the November 2021 highs (approximately 10% above current levels),” according to a previous Teucrium blog post. “Wheat prices are likely to continue to rise, building in a ‘risk premium’ in anticipation of a conflict. ”
With Russia and Ukraine combined accounting for 30% of all global wheat exports, traders are worried that any military action would impact normal crop movements and trigger a mass scramble among importers to secure supplies from the Black Sea region.
“Disruptions in supplies from the Black Sea region will impact overall global availability,” Phin Ziebell, agribusiness economist at National Australia Bank, told Reuters. “Buyers in the Middle East and Africa will be seeking alternative sources.”
About 70% of Russia’s wheat exports head toward buyers in the Middle East and Africa over 2021, according to Refinitiv shipping data.
The heightened tensions are already causing some vessels to divert course and clog up already congested global supply chains over war concerns.
“Ships are avoiding entering the Black Sea because of the war risk,” one Singapore-based trader told Reuters. “Supply disruptions are already taking place.”
Teucrium, though, did warn that “risk premium could evaporate very quickly amid a peaceful resolution. However, the downside could be limited given the expected reduction in global supplies.”
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