The daily evolution of wheat prices in international markets has become an indicator that not only accounts for the economically serious situation in which the countries that are net importers of this cereal are plunging – as is the situation in Chile – but is also visualized as a variable that reflects the disorder and uncertainty of the world food market as a whole, as a result of the war between Russia and Ukraine. Therefore, it is important to provide some data that help to understand and give greater realism to the prevailing situation in relation to this cereal.
An important precedent is that the FOB price – without considering freight – of bread wheat, in Argentine ports, went from 309 dollars per ton on January 2 of this year, to 417 dollars per ton at the end of February, and reaching 482, dollars per ton on June 3 of this year.
To understand this increase, we must start by remembering that Russia is the main wheat exporting country in the world, according to 2021 data. Its exports amounted to 7,301 million tons last year, which represents 13.1% of world exports. The United States and Australia followed closely behind, with percentages of 13.1% and 13% of world exports, respectively. There is no reason to assume that these countries’ exports will decline substantially in the current year. Russia is one of the belligerent countries, but the war is not taking place on its territory, and there is no reason, therefore, to suppose that its production and export capacity will undergo substantial modifications in the 2022/2023 season.
Different is the case of Ukraine, which produced 8.5% of world wheat exports in 2021, and which, as a result of the war, does not have full control of its territory or ports, which could be reflected in a decrease in supply in international markets in the near future. India, which is a country that by its own decision reduced its wheat exports, is the exporter that ranks tenth in importance as a world exporter of that cereal, and that represented 3.1% of world exports last year.
Despite these movements, FAO forecasts regarding world exports are that the volume exported will go from 192.1 million tons in the period 2021/2022, to 188.9 million tons in the period 2022/2023. That is, a slight decrease, of barely 1.7%. This suggests that exporting countries that do not occupy the first places in that market (Australia, Canada, France, Argentina) will do everything possible to take advantage of this situation to increase their production as much as feasible. If that were to become a reality, it would help mitigate the growth of international wheat prices.
But why this rise in wheat prices over the course of 2022, since before the war between Russia and Ukraine? There are several possible reasons, which are mentioned in this article only as hypotheses that merit more background to be validated. One hypothesis is that the origin of the increase in the price of wheat lies in the previous increase in fuels and fertilizers that are, obviously, important inputs for modern agriculture. And since Russia is a major exporter of both inputs, it is possible to think that Russia benefited greatly from this pre-war price hike. Moreover, it is possible to think that he financed part of the war expenses with those previous profits.
Another point of view puts the focus on pure and simple speculation. Expectations of price increases give rise to purchases in international markets for the purpose of storing and selling in the near future, when the price of this cereal actually reaches the expected higher levels. And since the current demand, for speculative purposes, generates an additional demand that makes the price increase effectively possible, the whole operation is transformed into a self-fulfilling prophecy.
Another possible reason, closely related to the previous one, is that wheat increasingly assumes the character of an asset that is used as a safeguard of value against the variability observed in the international price of the dollar. Wheat would thus assume the character of a financial asset, and not just the role of a consumer good.
Also, it is possible to think that the international reserves of this cereal, which are not few, increase according to the expectations of scarcity and price increases.
In any case, the simple reasoning that there is war, there is less wheat and prices must rise, merits a more complex analysis, both of the causes and effects of the present situation, which takes into account both the complexities of international trade in goods and the world financial system, where there are actors who are not mere spectators in this unprecedented international situation.
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The content expressed in this opinion column is the sole responsibility of its author, and does not necessarily reflect the editorial line or position of El Mostrador.
