The far-reaching effects of the Russian invasion of Ukraine in February 2022 have come with some unexpected consequences to industries that should be thriving. What’s worse than a lousy harvest season? If you were to ask US farmer Vance Emhke, it’d be harvesting a good wheat crop that is no longer sellable at a profit, despite wheat prices soaring nearly 30% in recent weeks, pushing prices to $12 a bushel.
While the Emhke’s aren’t the only growers squeezed by the Eastern European conflict, they represent US wheat and commodity farmers who may soon find themselves with tough decisions to make.
Reuters reports that Russia is the world’s top exporter of wheat, and Ukraine is a heavy exporter of wheat and corn. Because of this, many of the big players in the commodity selling trade aren’t ready to risk their profits by buying US-grown wheat.
This isn’t good news for commodity growers in America, who should have profits pouring in instead of sitting on wheat they have to store at cost.
Costs Mount as Conflict Rages
The longer the Russian/Ukraine war continues, the longer commodity traders and sellers will suffer. When you can’t move your product, you can’t make a profit. But, having to pay to store that product is only the tip of the iceberg when it comes to the ever-increasing costs growers in the US will pay to keep their crop until they can sell it.
Here’s a look at what it takes to get a crop from the field to the market.
1) Planting-According to Wheat in Question, this phase of growing starts around March or October, depending on the season, and harvesting happens around July (for spring wheat) or February or May (for winter wheat).
2) Harvest-This process is time-intensive, effectively pulling all the wheat from the earth and separating the seed from the stalk.
3) Storage- Once wheat is harvested, it goes directly to a grain elevator. At this point, a farmer must decide whether he wants to sell the wheat or pay a fee to have it stored in the hope that wheat futures will rise, giving him a more significant profit. Unfortunately, according to Baker Bettie, most farmers can’t afford to store their wheat indefinitely and will likely decide to sell, even when prices are low.
4) Mill-Half of US-grown wheat gets exported, while the other half is used to make flour. Hard red winter wheat, for instance, gets milled into all-purpose flour, Baker Bettie reports.
Simple Doesn’t Mean Easy
Getting wheat from harvest to the mill isn’t as cut and dried as it might seem. While each step is simple in its own right, the sequence can be rife with complications. Like a war that effectively stalls the grain selling process so that US growers can’t access the highest prices wheat has seen since February of 2008, Macrotrends reports.
The fear of risking a profit on selling at the wrong time is so innate as the war continues to ravage Ukraine that virtually no one in the commodity system is willing to take a chance on purchasing wheat while the upheaval in Eastern Europe continues.
Commodities Are Always Risky
While some would argue that the war and its aftermath are valid reasons to sit out purchasing commodities in any venue, there’s a truth that can’t be ignored, and that’s the fact that commodities are always risky.
Wheat, sugar, soybeans, apples; it doesn’t matter what product you choose. There will always be risks associated with producing, selling, buying, exporting, and importing commodities.
And while a war certainly isn’t a good news day for people directly affected by commodity risks, it leaves US growers om a bind, and potentially millions of bushels of wheat unavailable to a market that is now at risk of not having enough wheat to meet the world’s demand, according to the NY Times
Effects of Rising Inflation
There’s a more practical point to be made about the lack of a market for US-grown wheat, and that’s the cost of items like flour and bread. With a noticeable rise in inflation over the last couple of months, there’s no telling what a lack of flour might do to a staple like bread.
Suppose flour sees a massive price jump and bakeries can’t produce enough bread to meet demand. In that case, prices for an already tough market will rise drastically, pinching the wallets of the poorest Americans who are already struggling to make ends meet.
Expanding that consequence worldwide and the lack of wheat takes on a whole contingent of harmful effects on the already food insecure in third-world countries.
As a good portion of the world’s wheat supply stays locked in Russia and Ukraine, due to the war, countries like Lebanon and Egypt, who get their supply from those countries, will continue to see skyrocketing prices and little supply to meet an ever-increasing demand. However, whether or not the US will find a new market in those countries remains to be seen.
More Articles From the Wealth of Geeks Network:
This post was produced and syndicated by Wealth of Geeks.
Featured Image Credit: Pixabay.