Ukraine crisis: Continued political unrest could hit wheat market

25-Mar-2014 - Last updated on 25-Mar-2014 at 17:42 GMT

Political unrest in the Ukraine has led to a perceived risk in terms of wheat exports, says lead analyst at the Agriculture & Horticulture Development Board

Continued unrest in the Ukraine – the breadbasket of Europe – could cause the country's wheat prices to rise and harm exports, warn analysts.

In Euromonitor International’s February and March commodities round-up, economy, finance and trade manager Hilary Walsh warned that continued political unrest in the Ukraine could wreak havoc on the global wheat market.

Earlier this month, Russia announced plans to absorb the Republic of Crimea following a vote that indicated a majority of Ukrainians supported such change. Many leaders across the globe have refused to recognize this move as legal.

“The Ukraine is known as the breadbasket of Europe, so wheat prices in the region will be negatively impacted by any further deterioration in the geo-political situation over there,” she said in the podcast, available HERE.

Global wheat prices for February had already risen by 6.1%, she said, and further political unrest could heighten prices further, ultimately leading to higher bread costs.

However, Jack Watts, lead analyst for cereals and oilseeds at the Agriculture & Horticulture Development Board Market Intelligence, said that most of the impact from the Ukraine situation had already been seen in early to mid-March.

He told BakeryandSnacks.com there had been a devaluation of the Ukrainian currency which may well make exports attractive to global markets, but added that the political unrest had sparked perceived risk in the market, something that in turn may have offset the impact of the weaker currency.

“Ukraine has had an impact on wheat and broader grain prices, but it’s important to keep in mind that fundamentally nothing has changed in terms of supply and demand for the current marketing year. Essentially, the Ukraine has produced good grain crops, it’s just there is less confidence in the ability of Ukrainian grain to get to the world market,” he told BakeryandSnacks.com.

Still uncertainty but weather likely to have bigger market impact

“There are still a lot of uncertainties to overcome before the market can reassess the situation and respond to the devaluation of the currency - it’s in a transition stage at the moment,” he continued.

The past few harvests had seen commodity exporters dealing with instability on the demand side, he explained, but now there was a similar level of instability on the supply side from the Ukraine, given the perceived risks.

However, Watts said that variable weather in the country and Russia was more likely to impact wheat exports and pricing than political unrest.

He added that while Ukraine was a player in the globe’s wheat export market, it held a relatively small share at around 6%, particularly compared to bigger markets like the US, EU, Argentina and Australia.

“I’m not overly convinced that this is going to have a massive impact on end product prices, unless we see some escalation of the situation in Ukraine,” he said.