Russia, Ukraine, and Domestic Wheat Prices

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Shattered Ukraine town in rebel hands as leaders urge respect for ceasefire”  It’s a CNN story headline from Thursday afternoon as, according to the article, Degaltseve is the scene of staggering devastation.  At the heart of the battle between Ukrainian forces and pro-Russian separatists, CNN reports that the town is a mess.

Why does a town an ocean away mean so much to our wheat markets?  Louise Gartner with Spectrum Commodities spoke with Haylie Shipp on Wednesday about the Russia/Ukraine issue and why it does tug so boldly at our domestic prices.

Reason #1 – Competition
“They are such an important exporter,” said Gartner when talking about Russia.  When it comes to wheat exports, they are second only to the United States.  

Reason #2 – Value of the Ruble
The turmoil between Russia and Ukraine has dramatically devalued the currencies of both, making Russian wheat more tempting on the world market.  Reuters reports that “Russia's main wheat buyers are Turkey, Iran and, very vulnerable to supply disruption, Egypt.”  The flip side to this coin is that, in response to the aggressiveness from Russia towards Ukraine, countries around the globe are issuing sanctions against Russia until they back off. 

Reason #3 – Weather
Making it more complicated yet is a poor growing season in which Russia’s wheat crop was planted into this year.  This has Russia in protection mode and, as of February 1, they shut off exports in order to protect domestic supply.  They are a member of the World Trade Organization.  This means that they have to be very careful as to how this is done so that there aren't repercussions.
 
It is a highly volatile situation with numerous moving parts, any one of which can impact world wheat trade in a major way.  “It’s a balancing act,” said Gartner, “and they’re not doing well.”
 

 

 

© Haylie Shipp 2015

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