After a string of feverish months where the price of wheat hit a decade high following Russia’s invasion of Ukraine, grain futures have recently seen a sharp drop in prices.

Reuters reported on Monday that U.S. wheat futures fell to their lowest level since February. And FAccording to Paul Hughes, chief agricultural economist at S&P Global Commodities Outlook. He cited a few factors of decline.

On the one hand, weather conditions in the northern hemisphere have become more favorable after hot, dry conditions hampered spring wheat planting in North America and conditions threatened progress on farms across the country. ‘European Union. “The weather has normalized and production prospects have improved,” he said by email. “Additionally, there is the normal seasonal price pressure that comes from the ongoing Northern Hemisphere winter wheat harvest.”

Meanwhile, Australia, which is one of the biggest wheat exporters, is expected to produce a bumper crop, Bloomberg reported.

Demand has also taken a hit. About 20% of the wheat produced is fed to animals worldwide “in a normal year,” Hughes said. “However, the high price premiums of wheat over maize have minimized the supply of wheat globally, reducing demand.”

Finally, the U.S. Federal Reserve’s decision to raise interest rates dampened investors’ expectations for inflation and led to a flight of commodity money, he noted. “As of mid-April, investment funds were holding long positions in [agricultural] over $55 billion,” he said. “That long position was reduced by $20 billion and now stands at nearly $35 billion by our calculations. This liquidation in itself accelerated the decline.

But should this trend continue, especially as fears of a recession grow? Not necessarily, according to Kenneth Scott Zuckerberg, Chief Economist, Grains and Agricultural Supply, with CoBank.

“Despite the recent decline, we think we’re probably bottoming out, and in fact we would say we’ve probably put a bottom here,” he said.

Zuckerberg cited a series of “demand signals” over the past few days. On the one hand, Egypt – one of the biggest wheat importers – is seeking to bolster supplies that have been strained by the Ukrainian invasion, joining countries like Taiwan, Algeria, Jordan, Pakistan and Bangladesh, and several export markets are reacting. Meanwhile, global wheat shortages will likely persist for another two harvest seasons, he said.

“When prices are rising and a recession looms, I think consumers are going to vote with their wallets.”

Kenneth Scott Zuckerberg

Chief Economist, Grains and Agricultural Supply, CoBank

Despite the current bearish sentiment among speculators, there are many reasons to expect wheat prices to rise over the longer term in the face of growing demand. Zuckerberg noted the continued effects of the Russian invasion in terms of export restrictions on Ukrainian wheat and a high likelihood that the country’s winter wheat crop will be much lower this year, leading to tighter the global supply.

On the demand side, many countries in the Middle East and North Africa are facing a wheat deficit. “So we think they’re buying and they’re going to buy in droves, and there’s only a limited amount to circulate,” he said.

Zuckerberg is watching five factors to determine the direction of wheat prices for the rest of the year. The movement of grain from Russia and Ukraine is one. Second, the analyst will look at crop progress in the United States. On Monday, the USDA released numbers showing the condition of spring wheat is better this year than at the same time in 2021, while winter wheat is in worse condition.

The third factor has proven particularly influential in shaping the outlook for crops like wheat, corn and soybeans this year: weather. A La Niña weather pattern, which can bring extreme conditions, “is likely to put pressure on crop yields, and we’ve just learned that Argentina’s wheat crop is in worse shape than people expect. thought,” Zuckerberg said. “It will weigh on yields, which means less supply, higher prices.”

The agricultural analyst will also observe how acreage changes between different crops in the United States. According to USDA’s crop progress report released today, acreage planted to wheat and soybeans increased only 1% from 2021, while corn acreage declined of 4 %. The USDA noted that wheat acreage was the fifth-lowest planted acreage for all wheat since records began in 1919. Zuckerberg said the trade consensus was that wheat acreage would decline due to weather conditions. harsh weather.

Finally, what is the global macroeconomic environment like? Could China, emboldened by Russia’s advances, take steps to assert its control over Taiwan? How will the US economy fare relative to other countries in terms of falling into a recession?

“On the other hand, God willing, we won’t have another Arab Spring, but it’s summer, it’s hot. And some people feel like they’re running out of food,” Zuckerberg said. “So I’m sort of on the cusp of whether or not there might be an increase in conflict in that part of the world.”

That said, there is also a “corrective force” for prices at play, he said: consumers. With food prices up nearly 12% this year over the previous year, according to the Bureau of Labor Statistics, how will shoppers react to their higher grocery bills? A recent analysis of transaction data by Symphony RetailAI found that the most price-sensitive consumers – about a third of all shoppers – are turning their backs on the products they are loyal to and have traditionally bought and are turning to more affordable alternatives. Could they also change the types of food they buy?

“When prices go up and a recession looms, I think consumers are going to vote with their wallets,” Zuckerberg said.