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Russia sows discord in wheat market
This week, tensions between Russia and Ukraine escalated again, as Russian troops and tanks reportedly invaded Ukraine. While US military involvement still seems unlikely, analysts believe that the situation is shifting toward a full-blown war, which could destabilize both nations and limit their ability to produce and export numerous commodities, especially wheat.
Both Russia and Ukraine are major global grain producers, together accounting for over a fifth of the world's wheat exports. Military operations could hamper production, harvest, and transport of the grain, disrupting the flow onto the marketplace. Furthermore, Western nations have threatened increased sanctions against Russia, which could limit the available supply of wheat onto the global market.
As a result of these fears, wheat prices rose to the highest level in three weeks, with September wheat touching $5.62 per bushel on Friday. Longer-term, even with a worsening conflict in Eastern Europe, many analysts expect the global supply to be ample, which could prevent a runaway market.
Other commodities that could have supplies limited by sanctions against Russia rose as well this week, including crude oil and palladium, a key component in automobile catalytic converters.
Meanwhile, despite wheat's rally, corn and bean prices are languishing as US farmers prepare to harvest record-sized crops. Due to the expectation for a surplus after this fall's harvest, prices for both grains have fallen to the lowest level in nearly four years.
Java jumps on drought fears
Coffee prices reached a three-month high on Thursday as traders reacted to increasing reports of drought-damaged coffee. Of primary concern is Brazil, which produces half of the world's sought-after arabica coffee variety. Brazil is suffering from its worst drought in decades, which is reducing production estimates by nearly 20%.
Meanwhile, Central American producers like Guatemala, Costa Rica, and Honduras have been experiencing weather issues alongside a fungus known as coffee rust. These factors are cutting into Central American production as well, further reducing the flow of coffee onto the market.
As a result, coffee futures are trading near $2.00 per pound, a significant jump from the recent low of $1.60 in mid-July.
This is not a solicitation of any order to buy or sell, nor does it provide any recommendations in regard to the market. Information contained herein is believed to be reliable, but cannot be guaranteed as to its accuracy or completeness. Past performance is no guarantee of future results or profitability. Futures and options trading involve substantial risk of loss and is not suitable for all investors. Clients may lose more than their initial investment.