The war in Ukraine imposed its rhythm on the grain market in 2022

The grain market 2022 entered an era of uncertainty due to the war in Ukraine, which highlighted the fragility of the planet’s food systems.

Analysts define 2022 as a “year of extremes”, “out of the ordinary”, and expect volatility to continue into 2023, with prices supported by the return of demand from China, which is removing its sanitary restrictions.

In 2022, wheat prices -and therefore, bread- lived on a “roller coaster”, in the tense context of the post covid recoverywhich had inflated energy and grain prices.

The world dodged the worst-case scenario of “famine hurricanes” that came to evoke the HIMbut it is expected that in 2023 the global bill of food imports will rise by 10%, according to the FAO.

Poor countries, especially those in sub-Saharan Africa, “will pay more to have less,” he warns.

cluster of uncertainties

The war in Ukrainean agricultural superpower that was about to regain its historic role as the planet’s breadbasket, confronted the world with an unprecedented shock.

“This war has endangered, by itself, a quarter of world trade in cerealsprompting many countries to protect their national food supplies by limiting exports”, as in the case of India, and has highlighted “the fragility of the world food system”, underlines an analysis note from the UBS bank.

In the European market, wheat started 2022 at 270 euros (287 dollars) a tonne and reached 315 (334 dollars) at the end of December, an increase of about 17% in one year. But this hides an “unprecedented volatility, with a peak of 438 euros on May 16” when merchant traffic was almost paralyzed in the Black Sea, recalls Arthur Portier, an analyst at the Agritel cabinet.

The current “volatility is linked to a host of uncertainties”: in agricultural markets, we go from almost exclusively climatic risks to health uncertainties linked to covid and avian flu, geopolitical, with the war in Ukraine, energy, with the increase the price of fuel and grain, and macroeconomic, with the fear of a global recession, he explains.

The situation in Ukraine was the sole driver of the market for months: the Russian president, Vladimir Putinimposed grain diplomacy trying to link the fate of trade in the Black Sea with a partial lifting of international sanctions against his country.

2023, another volatile year?

While Western Europe was scorched by the heat wave, Russia was reaping a bumper crop -estimated at close to 100 million tons by various analysts- at the same time that Ukraine lost a quarter of its cultivated area to the war, with grain production at 40% drop.

On paper, world wheat reserves are at their highest level in exporting countries.

But, underlines Arthur Portier, “35% of reserves are currently in Russia“, accommodated in its position of arbitrator if a major weather incident occurs in any other exporting country.

On the other hand, in 2022 the American markets suffered from the strength of the dollar and the drastic slowdown in demand in China, usually hungry for soybeans and corn.

If the Chinese recovery is confirmed and the US Federal Reserve (Fed) becomes “more neutral”, stopping raising its reference rates, “the commodity bubble may inflate a bit again and funds will buy more”, explains Michaël Zuzolo of Global Commodity Analytics and Consulting.

For UBS analysts, the “2023 will likely be another volatile year“, since “the prices of cereals do not sufficiently reflect the level of climatic and geopolitical risks” present and future. The markets, consider the experts, have digested -perhaps too quickly- the risks linked to the Ukrainian conflict and the phenomenon La Niña climate that floods Australia and dries the American plains, southern Brazil and Argentina.