Fear over a disruption in global exports of grain from Russia and Ukraine have seen the price of wheat skyrocket on commodities markets.
Last week, Teucrium Wheat Fund, a wheat-based commodity ETF, had to stop creating new shares following soaring investor demand. The fund only has a finite number of shares it can sell investors—7.4 million—and when enough people expressed interest in cashing in on its booming value, the ETF reached its threshold and began trading at a significant premium over the actual value of the fund.
“Commodity prices have soared the last two weeks as a result of the Russian invasion of Ukraine, drawing novice investors looking to make a quick buck,” Jared Dillian, editor and publisher of market newsletter The Daily Dirtnap, wrote in Bloomberg on Thursday. “Many are already getting burned by their lack of knowledge.”
The ETF was still available to trade as this was happening, as the Securities and Exchange Commission accelerated the sponsor of the fund’s request to create new shares. This was granted on Wednesday, slightly stabilizing shares after they soared on Tuesday to $13.64 per bushel. However, they remained up 50 percent from the start of the year, Bloomberg News reported.
The recent trajectory of wheat futures reflects long-standing anticipation that the Russia-Ukraine crisis could affect global food supply. Prices were on the rise before the invasion, in part because of broader supply chain woes and prolonged dry weather in the Middle East. By Feb. 24, the morning that Russia invaded Ukraine, wheat futures prices on the Chicago Board of Trade had hit their highest point since July 2020, Quartz reported at the time. (For context, food prices, broadly, had also hit a record high around that time, so this was in keeping with a wider trend.)
Ukraine and Russia, which have in the past been dubbed “the breadbasket of Europe” for being major exporters of grain, are together responsible for 29 percent of global wheat trade. Ukraine, which operates five major grain ports, had to shut them down in the immediate aftermath of Russia’s invasion, and has since banned exports in the interest of ensuring that the country’s own food supply remains stable amid conflict. On Thursday, Russia announced it was doing the same, as have countries well outside the conflict, like Egypt, out of fear that global supply-chain disruptions could strain their own reserves.
On Tuesday, Goldman Sachs said the global grain market was headed for the “sharpest shock” it had experienced since 1972, when the Soviet Union bought up the U.S. wheat stock amid massive crop failures in an incident known as the “Great Grain Robbery,” Bloomberg News reported.
Experts in global food security fear that rising futures prices and trade halts could soon translate to shortages of a vital commodity on store shelves.
“In a year when the world is already facing an unprecedented level of hunger, it’s just tragic to see hunger raising its head in what has long been the breadbasket of Europe,” World Food Programme executive director David Beasley said on March 4. “The bullets and bombs in Ukraine could take the global hunger crisis to levels beyond anything we’ve seen before.”
Countries like China and India maintain vast grain reserves designed to withstand disruptions to the global food supply. And while the U.S. is relying on large reserves of other commodities—like oil—to withstand aftershocks of its sanctions on Russia, its strategic grain reserves are nothing to be inspired by.
Jimmy Carter’s administration set up national wheat and corn reserves after a period of major drought in the 1970s, but they were mostly disbanded by the ’90s. The U.S. is still home to the Bill Emerson Humanitarian Trust, created in 1980 to hold up to four million metric tons of wheat, which was later expanded to include other commodities, but it no longer holds actual grain—it’s now an all-cash reserve, meaning it’s run on futures contracts that can be sold according to need. The U.S. also maintains a Strategic National Stockpile (SNS) with a reserve of medical supplies—which it tapped for personal protective equipment at the beginning of the COVID-19 pandemic—but it does not contain food.
One tool the U.S. does have at its disposal is empty acres of land held on reserve via the Conservation Reserve Program, available for cropping on an emergency basis for one year periods. That land has been rented to the Department of Agriculture by private landowners and agricultural producers, and constitutes 22.1-million acres on the whole.
Opening this land up for quick cropping could fill any gaps in supply left by the Russia-Ukraine conflict, Steve Irwin, agricultural economist at the University of Illinois, tweeted last week.
“I am convinced it is going to be the biggest supply shock to global grain markets in my lifetime,” Irwin said in a thread. “I truly hope I am entirely wrong. But if I am not, then we have to begin thinking about some responses that would have been unthinkable just a little over a week ago. There are potentially tens of millions of acres of grain production at stake right now.”