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Commodities Corner: USDA says Russia’s actions raise uncertainty for agricultural supply, cuts world wheat export estimate

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The U.S. Department of Agriculture on Wednesday cut its estimate for world wheat exports, warning that Russia’s recent actions in Ukraine have “significantly increased the uncertainty for agricultural supply and demand” in the region.

In a monthly report, the USDA reduced its 2021/2022 world wheat exports estimate by 3.6 million tons to 203.1 million tons.

The government agency cut its wheat export expectations for Ukraine by 4 million to 20 million tons, and for Russia by 3 million to 32 million tons. It said decreases in wheat exports from Ukraine and Russia are only partly offset by increases for Australia and India.

So far, however, the USDA does not anticipate the U.S. will increase wheat exports to help meet demand,” said Jake Hanley, managing director, senior portfolio strategist at Teucrium.

The agency also pointed out that higher wheat prices may hurt demand, resulting in lower imports for countries such as Egypt, Turkey and the European Union, he said.

Also see: Ukraine bans exports of wheat, oats and other food staples

Importantly, the numbers in the latest report are “reflective of the current wheat crop that has already been harvested,” said Hanley. “What the report doesn’t address is the winter wheat crop that is in the ground now, that may or may not be harvested. A drawn-out conflict may mean farmers and field laborers are off fighting a war vs. tending the fields.”

The USDA emphasized Wednesday that the monthly World Agricultural Supply and Demand Estimates report “represents an initial assessment of the short-term impacts as a result” of Russia’s military actions in Ukraine.

Before the Russia-Ukraine war broke out, “wheat had the best balance sheet of the big three grains,” said Sal Gilbertie, president and chief investment officer at Teucrium.

There are now “three main concerns relative to the Black Sea war right now,” he told MarketWatch, ahead of the monthly USDA supply and demand report. Last year’s crops of wheat, corn and sunflower seeds are now “trapped in the country and will not be exported,” he said.

“No one knows if the current winter wheat crop that is now dormant in the fields and will grow when spring comes will be harvested and available,” he said. Also, it’s “uncertain whether Ukraine and Russian farmers will have the fuel, seeds, fertilizer, and ability to actually plant the corn and sunflower crops this spring.”

“All of this is adding great uncertainty to the [agricultural] markets right now, especially corn and cooking oil markets,” said Gilbertie.

May wheat
WK22,
-6.61%

W00,
-6.61%

continued to trade lower despite the news, settling at $12.01 ½ a bushel, down 85 cents, or 6.6%, for a second straight session loss.

However, most-active wheat futures settled at record high of $12.94 on Monday, with the most-active contract trading up by its daily limit on the Chicago Board of Trade for a six consecutive session in reaction to the possibility of supply disruptions due to the Ukraine war.

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