The War In Ukraine Is Shifting The Commodities Market: Here's How

The war in Ukraine is having a major impact on commodity prices, especially in the grain markets.

Al Kluis, managing director of Kluis Commodity Advisors, an introducing broker for Wedbush Futures, joined this week's "Wednesdays With Wedbush" segment on PreMarket Prep Plus for an update.

War Impact On Production, Exports: Kluis was quick to mention that Ukraine is the world’s fourth-largest exporter of corn, the third-largest exporter of wheat and the largest exporter of sunflower seeds. With production stalled and ports inactive, it is having a more of an impact on China, which heavily relies on Ukraine for corn, than the United States, he said. 

An interesting fact Kluis shared with respect to overall U.S. production: for every U.S. citizen, we have 1 acre — a football field plus one endzone — of farmland. That is much more than China, which has a fraction of that — from the goal line to the 20-yard line. 

Kluis went on to detail other ways the war is wreaking havoc on the Chinese economy.

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Is There Panic Buying? From Kluis' observations, “not yet.” He commented that this week, buyers are still submitting tenders for wheat, but are being very coy about how much they want and are willing to pay.

For the most part, they are asking for higher quantities to get better prices and end up not purchasing the full amount, but rather bargaining on price.

Weather Delays For US: One of the most important determinants of crop production anywhere in the world is how the weather can affect the planting season. Obviously, if there is bad weather and it delays the planting season, it will exacerbate the supply problem.

At this time, with the unseasonably cold and wet spring that is persisting for at least the next six days, there are no major concerns. Yet if this climate continues into the first week of May, the situation could quickly worsen, Kluis said. In that case, crop yield estimates will need to be revised lower and in turn result in higher prices.

Other Factors For Yield Prospects: Kluis discussed how for the first time ever in the United States, soybean production will be greater than corn production. The reason for this is the fertilizer needed to grow has skyrocketed in price and comes primarily from Belarus and Russia.

Kluis forecasts the damage to the yields for corn will be affected more in 2023 than in 2022 if exports are halted or limited for geopolitical reasons.

The full discussion with Kluis from Wednesday’s show can be found here: