Ukraine War Escalation Heightens Concerns About Food Commodity Prices

Ukraine’s long-awaited counteroffensive and a new stage in the war 16 months into Russia’s invasion is raising questions about the immediate and long-term impact on global commodity prices. 

On Tuesday, a U.N. official warned the damage to the Dnipro River dam in Ukraine will have a long-lasting impact on global food security and will likely result in a food prices hike. 

"This is a breadbasket—that whole area going down towards the Black Sea and Crimea is a breadbasket not only for Ukraine but also for the world," Martin Griffiths, U.N. aid chief, told the BBC. "We're in difficulties already on food security, but food prices, I'm sure, are bound to increase." 

While the USDA is projecting global wheat supplies to increase 10.8 million tons to 1,066.9 million in its latest report out earlier this month, based on “larger production for Russia, India, the EU and Ukraine,” wheat prices are still expected to come under pressure. 

“The escalation of hostilities in Ukraine calls into question the viability of the Black Sea Grain Initiative,” Jake Hanley, managing director and senior portfolio strategist at Teucrium ETFs, told etf.com.  

In fact, the future of the Black Sea Grain Initiative, which was brokered in July last year, is in question now, with the U.N. chief expressing concerns that Russia may walk away from the deal in July, Reuters reported. 

If that happens, wheat prices are expected to jump. 

“Russia is holding the whole thing hostage. There is just a trickle of shipments coming out of Black Sea,” Stephen Nicholson of RaboResearch Food & Agribusiness told CNBC. “If the Black See Grain Initiative would be in jeopardy as we come into July, we could see wheat prices spike again because the market doesn’t have enough stocks among the exporters to fulfill that gap.” 

Commodity Concerns Extend Beyond Wheat

“Other food commodities, such as corn, soybeans, oilseeds, have also seen significant increases in prices due to supply shocks and rising demand amid the pandemic recovery,” Hanley noted. “The situation could worsen in the coming months if the harvest season is affected by the ongoing fighting and instability.”  

The Teucrium Wheat Fund (WEAT), which was launched in 2011, is down 42% in the past year. The fund tracks wheat performance by holding CME Group wheat futures contracts with three different expiration dates. The Teucrium Corn Fund (CORN) is up 5.8% in the past month, while the Teucrium Soybean Fund (SOYB), which offers investors pure exposure to soybean futures contracts, is down 1.6% in the past month. 

For broader exposure, the Teucrium Agricultural Fund (TAGS) is a fund-of-funds that invests in four of Teucrium’s commodity funds. 

Geopolitics, climate change and weather conditions will continue to impact supply dynamics going forward. Teucrium and others offer leveraged products that help investors hedge their commodity bets. 

“The fundamentals in the grains markets suggest that prices could continue lower, yet geopolitics is a significant wild card,” Hanley explained. “We have recently launched two long/short commodity ETFs that offer profit potential regardless of price direction.” 

Contact Daria Solovieva at [email protected]