This week, tensions between Russia and Ukraine escalated again, as Russian troops and tanks reportedly invaded Ukraine.
While U.S. military involvement still seems unlikely, analysts believe the situation is shifting toward a full-blown war, which could destabilize both countries and limit their ability to produce and export numerous commodities, especially wheat.
Russia and Ukraine are major global grain producers, together accounting for more than 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 countries have threatened increased sanctions against Russia, which could limit the available supply of wheat on 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 soybean prices are languishing as U.S. farmers prepare to harvest record-sized crops. Because of the expectation for a surplus after this fall's harvest, prices for both grains have fallen to the lowest level in nearly four years.
Coffee 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 percent.
Meanwhile, Central American producers such as 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 per pound, a significant jump from the recent low of $1.60 in mid-July.
Walt Breitinger is a commodity futures broker in Valparaiso. He can be reached at (800) 411-3888 or www.indianafutures.com. This is not a solicitation of any order to buy or sell any market.