Expect more pain at grocery checkouts

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Bread might soon cost you more dough.

Indeed, the Russian invasion of Ukraine has jeopardized much of the world’s wheat supply. Russia and Ukraine have, in fact, been called the “breadbasket” of the world.

“Today, exports from Russia and Ukraine account for about 12% of total calories traded globally, and the two countries are among the world’s top five exporters of many important grains and oilseeds, including wheat, barley, sunflower and corn. Ukraine is also a major source of sunflower oil, supplying about 50% of the world market,” according to the International Food Policy Research Institute.

Wheat has been one of the most closely watched commodities in the past two weeks following Russia’s invasion of Ukraine. Crate of Teucrium Wheat, (WHEAT) – Get the Teucrium Wheat Fund Reporthit 14-year highs earlier this week and that has slowly translated into higher prices at grocery stores for bread and other wheat products.

Teucrium Trading President Sal Gilbertie has joined The streetKatherine Ross and Chris Versace, co-portfolio manager of Action Alerts PLUS, will discuss the impact of soaring wheat prices on food prices and the consumer.

Full transcript of the video below:

Catherine Ross: Oil and wheat were the focus after Russia invaded Ukraine. Commodities reacted directly to headlines out of Eastern Europe as the situation unfolds there. With me today are Chris Versace, co-portfolio manager of Action Alerts PLUS, and Sal Gilbertie, president of Teucrium trading. First of all, Sal, can you describe the commodities that are affected by the current situation in Russia and Ukraine, and what this means for investors?

Sal Gilbertie: Of course, the major commodities involved are energy and grain, as well as fertilizers, Russia – it’s energy related. Russia has been a huge exporter of oil and natural gas, as you have heard in the headlines. They also account for most of the world’s wheat between Russia and Ukraine, they make up 30% of available exported wheat. Ukraine is I think 16% of the available exported maize, none of that will be available. It probably has the biggest impact on those markets than anything else. And you know, taking barrels of oil, natural gas, corn and wheat off the market and sunflower seeds, sunflower seeds, sunflower oil. It’s a huge impact across the world.

Chris Versace: Now Sal, when we see that start to happen, there’s always a knee-jerk reaction in terms of price. Now, based on the data you’re looking at, how well is the removal of these ags from the global stage factored into current prices? In other words, do we have more to do?

Gilbertia: I think so. And the reason is that it’s double-baked. First, remember it’s winter there, so the ags that are no longer on the market, the export ags were already harvested last fall, and they’re in storage. And so the wheat and the corn and the solar products that haven’t shipped yet, that were harvested last year, they’re still there, they haven’t disappeared, they’re still in global inventory, but no one can access it.

So I think that’s what’s been priced right now. What still needs to be assessed and won’t be able to be assessed until probably mid-summer is this year’s new planting. So wheat is a winter crop, it’s planted in the fall, their winter wheat is planted in the fall, it’s sleeping in the fields right now. It will grow, whether they fight or not, this wheat will all grow. And it will be there to be harvested as soon as it warms up and the wheat grows. So there is a question in the wheat markets, will the wheat be harvested? And will it be exported? These questions are not yet taken into account. Regarding corn and sunflowers. They are not winter crops, they are spring crops, which means you have to plant them in the spring. Around mid-April, they begin to plant very actively there. And will they plant, will corn and sun seeds ever be planted? And if they are not, it will have a permanent effect on stocks. While wheat stocks are still on the books. They are always reflected in the world statistics. Corn stocks within a year, if not planted, will not be there, they will be gone. And the market has yet to price either of those two things.

Versace: We’re approaching spring planting season here in the United States, aren’t we? Now, as we needed to compare/contrast a bit, what does this mean for farmers and when will we get a sense of how abundant the forecast and US harvests are, versus expectations, and how that might have an impact on the world stage?

Gilbertia: I think the United States is going to plant – farmers are going to tear up their flowerbeds and plant in the gaps in their sidewalks. You are going to see record crops planted and harvested, weather permitting, in the United States. This is a huge advantage for American farmers. This is a huge advantage for South American farmers. And Australian farmers had their best wheat harvest last year, and they are waiting to sell to the world. So all these places are going to benefit a lot.

Ross: So let’s focus on the consumer. What kind of impact could that have? Are we going to see pasta prices go up not by summer, but maybe by next fall? Could we see these increases and sunflower butter for example as well?

Gilbertia: I think so, you will see all of this because of the disruptions in grain production. I think consumers are going to see an immediate impact because most of the price of, say, your box of cornflakes is actually the energy and the packaging, the plastic and the paper and the transportation, and with the energy costs high that will be affected. Consumers will therefore see a sustained increase in prices, most immediately due to rising logistics and energy prices and shortages. And then there will be an extended period where the ripple effect of high grain input prices will also be affected.


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