Will Conflict In Crimea Impact Price Of Grain?

Second only to Australia in the export of wheat, the Ukraine is a strategic country in the formulation of the price of grain. The Russian takeover of Crimea and threat to expand its military operation throughout the Ukrainian nation, have yielded wide speculation as to the grain market.
 
An interruption in the export of grain from the region of the Black Sea would most assuredly spike the worldwide value of grain. Investors and analysts alike are speculating on the upward swing in the cost of wheat. The threshold is now.
 
After a Russian invasion of this rather defenceless country, investors can expect to see an escalation in wheat prices in the commodity futures market. It is this expectation that is driving the rise in the volume of grain options trading.
 
The Flow of Grain
 
Along with its prominence in the wheat industry, the Ukraine has become a major and growing force in the barley and corn sectors of the feed market. The futures market began to see a grain price increase that accompanied the first signs of a Russian intent to invade Crimea.
 
The corn crop is at the center of an immediate global concern. 20 million tonnes of recently-harvested corn is expected to make its way across the world. If the Russian plan of invading the entire Ukrainian nation comes to fruition, as many analysts foresee happening, grain prices will most probably be on the move. Traders who have speculated on the upward direction in the price of corn may well be extraordinarily happy with the market outcome.
 
As to wheat, the Ukrainian contribution to world consumption is 10 million tonnes. Double that amount is its total wheat production, which is just under the amount grown in Australia. The top three wheat-producing nations are the U.S., Australia and the Ukraine.   
 
Countries such as the U.K. will see a sharp rise in the price of bread should a Russian invasion of the Ukraine take place. Almost 25% of the global exports of wheat come from the countries that border the Black Sea. The invasion of Crimea may cause a blockage of Black Sea export routes such as the ports of Odessa and Sevastopol.
 
World Response
 
Some analysts are cautious as to actual market trends. The attitude is “wait and see” if Russia expands its military operation. If no expansion materializes, then the current upward movement in grain prices would not continue.      
 
The U.S. and NATO have recently established a non-military, pro-diplomacy course of action regarding the apparent malfeasance of the governments of various countries such as Syria and Iran. Recent statements by U.S. President Obama confirm that monetary sanctions are the intended response of America. Current discussions are planned to begin on a diplomatic level, between Russia and the developed countries of the world. This diplomacy gives Russia’s Putin the opportunity to go forward with his stated intentions, while sending in Russian diplomats to discuss the situation.
 
Economists have weighed in on the effects of the planned sanctions. Given Russia’s limited dependence on trade with Western Europe and the U.S., such sanctions are foreseen to be incapable of producing a far-reaching impact.
 
Australia is considered by analysts to be at or near capacity as to exportable grain. This translates into a severely shortened supply of the commodity in the event of a disruption in Ukrainian exports. A substantial increase in the price of grain would result, both in the commodities market and the food chain. 



About the Author:
Brett Chatz is a graduate of the University of South Africa, and holds a Bachelor of Commerce degree, with Economics and Strategic management as his major subjects. Brett provides in-depth analysis and consultancy to the critically acclaimed spread betting and CFD trading provider, InterTrader.com.