Trading Wheat during the Ukraine war

Ukraine is one of the biggest suppliers of grains for Europe and the world. The price of wheat is pricing in massive supply disruption with record-highs.

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The war on wheat

Wheat futures have spiked to a record high recently. This is expected as two of the top seven largest wheat producers worldwide are at war, and supplies from those areas could be subject to more sanctions. But wheat prices had been rising rather steadily for months before there was significant concern over an invasion of Ukraine.

The war has made a worrying problem a lot more acute. Global fertilizer prices rose all through 2021 due to a combination of factors, but primarily because of increased production costs due to rising energy prices, and China seeking to cut its carbon footprint. Ukraine's rich soil meant its farmers could be somewhat shielded from the increased production costs - until the war started.

Harvesting remains a concern

The largest yield crop is winter wheat, planted in October in Ukraine for harvest starting in June. With the crops already in the ground, it offers some extra room, compared to, for example, corn and sunflower, which will have to start being planted in April. However, the destruction of infrastructure in Ukraine might make harvesting a lot more complicated.

Logistics and sanctions to add pressure

Even if the war comes to an end and Ukraine can harvest, the destroyed rail lines might mean that Russian wheat will have difficulty making it to Black Sea ports. Meanwhile, high fuel costs are expected to exacerbate the fertilizer cost problem further.

Surge worst than Arab Spring incident

The run-up in wheat prices in 2013 is widely seen as one of the inciting incidents of the Arab Spring, which led to significant geopolitical turmoil. Prices have now spiked to nearly twice what they were back in 2013. Ukraine's largest consumers are in the Middle East and North Africa.

Wheat prices primed for a new record

Since the 24th, the Dow Jone's Commodity index for All Wheat index soared nearly 50%.
DJCIAW registered an all-time high shy off the 400 round level and pulled back to the 38.2% Fibonacci retracement. The bounce at 356 came about using the 221 low and 298 record high. If the retracement deepens, the next supports lie at 310 and 289 Fibonacci retracement levels.

The all-time high is poised to break, but the index is at price discovery mode. The most accurate method to project forward levels uses the inverse Fibonacci retracements levels -14.5%, -23.6% and -38.2%. Those can be observed forming resistances near 425, 440 and 465 – respectively.

Source: https://invst.ly/xlib2

Key takeaways

From squeezed supplies amidst sanctions to increasing production costs and speculation harvesting and infrastructure bottlenecks will take their toll, investors have much to pay attention to.

However, if the war continues, the wheat prices will probably accelerate higher. Wheat prices have been rising way before the invasion due to inflation. As long as inflation remains elevated, DJCIAW is unlikely to reverse.