A Historic Disruption To The World's Wheat Supply

Joe Weisenthal (0:05)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:11)

And I'm Tracy Alloway.

Joe Weisenthal (0:13)

Tracy, I feel like one of the things that we do is just keep revisiting old themes and sort of on this permanent rotation. And I literally think it was like basically a year ago, I think it was exactly a year ago, we did an episode on the rising price of grains, particularly corn, wheat and soy.

And since then, let's just say we have to revisit that now.

Tracy Alloway (0:38)

Yeah, well, we were just talking about this. But I think a year ago, you know, the theme was the weather hasn't been that good, crops haven't been that good, food prices are rising, China is buying a lot and that's adding additional pressure on supply. And now we have to throw Russia, Ukraine into the mix.

And it just seems like a pretty bad situation has possibly gotten a whole lot worse.

Joe Weisenthal (1:01)

Right. And so when people think about the commodity effects of that, of the war, of that conflict, I think predominantly people think about oil and gas. And of course, we have seen upward pressure on both. But Ukraine is also a massive exporter of wheat. Belarus, which has also come under sanctions, is a big exporter of fertilizer.

And so we have had this already tight market for commodities, for grains, for some of the conditions you mentioned. And they've just gotten a lot tighter.

Tracy Alloway (1:33)

Yeah. And of course, the one thing that I'm sure Odd Lots listeners know about the commodities market by now is that everything tends to be interconnected. So if you get a rise in the price of natural gas, for instance, that can end up feeding through into the price of fertilizers. I saw one news story right before we came on saying that Jara, which is one of the big fertilizer producers in Norway, is curtailing its production of fertilizer because of the nat gas price surge.

And then you have things that happen in the commodities market that feed through into other commodities. So again, another example here, the price of wheat is expected to increase production of pork because of course, a lot of pigs in Europe in particular eat wheat as their food grain. So everything's interconnected and it becomes really difficult to predict and track a lot of these movements and impacts.

Joe Weisenthal (2:28)

Exactly right. Well, you know, we mentioned that we talked about this year ago and so we are going to bring back the guest we spoke to before and try to wrap our heads around what is going around now because the one other difference is that anxiety about inflation overall much higher today than it was in early 2021 even as we started to see these prices rise. So complicated time, complicated situation.

I'm very excited to bring back Scott Irwin. He's an agriculture economist at the University of Illinois. So, Scott, thank you so much for coming back on Odd Lots.

Scott Irwin (3:02)

Well, my pleasure. Really look forward to it.

Joe Weisenthal (3:05)

Absolutely. Great to have you back. Let's start with actually right before the invasion. Just talk a little bit about how tight or how would you characterize the conditions in the grain market, you know, sort of early February 2022?

Scott Irwin (3:21)

We were kind of scraping along. Prices were certainly elevated relative to historical averages.

The latest thing that the markets had absorbed was a less than stellar growing season for South American soybeans. But we were getting along, anticipating a pretty good spring and big plantings of corn and soybeans here in the United States that would probably help smooth that out. We were going to have some volatility maybe related to summer weather here in the US. But I wouldn't say that, you know, we thought that anything was way out of bounds historically.

Tracy Alloway (4:08)

So how big a deal is Russia invading Ukraine from a grains or agricultural perspective? Because on the one hand, you hear a lot that the Ukraine in particular is, you know, known as the breadbasket of Europe. There's a lot of production there.

But on the other hand, farming is an industry that is familiar with supply shocks. You know, things happen. There's, I guess, bad weather and pestilence as well.

So how big a deal is this? Couch it in historical terms.

Scott Irwin (4:41)

Sure. This is the way that I try to communicate just how big of a hole this war is blowing in the global grain markets. The Ukraine in recent years has planted about 59 million acres of their top six crops, wheat, sunflower, soybeans, corn, barley, and what they call rapeseed.