It’s been over a year since Russia invaded Ukraine, and the agricultural commodities market is expected to see more volatility ahead, especially when it comes to corn and wheat prices.
“Going forward, corn and wheat markets will balance the supply response to high prices occurring in other major production regions with continued war-induced supply losses in Ukraine,” a Farm Doc Daily report said. “Prospects for 2023 Ukrainian production may be poorer than in 2022 and much more uncertain. Ukraine’s 2022 wheat crop was already planted prior to the start of the war.”
Additionally, logistical challenges remain. Russia’s occupation of the Black Sea has been preventing exports from leaving Ukraine, exacerbating a global food crisis.
“Logistics required to get necessary agricultural inputs like seed and fertilizer to Ukrainian farms may be more difficult now than in 2022 when some inputs were already on farms prior to the invasion,” the report added. “Finally, the market must also consider how elevated Ukrainian grain stocks will be incorporated into the world market if peace does break out. All these factors point to continued market volatility in the year ahead.”
Hedge Inflation With Commodities
While the conflict in Ukraine continues, global inflation is still hitting the capital markets. Central banks realize it will take some time in order to get stubborn inflation under control, which puts hedging strategies in focus once again — this includes getting commodities exposure to corn and wheat.
For getting agricultural commodities exposure via corn, consider the Teucrium Corn Fund (CORN), which tracks three futures contracts for corn that are traded on the Chicago Board of Trade, including 35% second to expire contracts, 30% third to expire contracts, and 35% December following the third to expire. The various contract exposures help the fund limit the negative effects of rolling contracts, especially during a market in contango.
Additionally, rising wheat prices should benefit ETFs that focus on the commodity, such as the Teucrium Wheat Fund (WEAT). As mentioned, the fund can be used as an ideal inflation hedge as prices continue to rise alongside rising commodity prices, or investors can use the fund to add commodities to their portfolios for diversification.
For more news, information, and analysis, visit the Commodities Channel.