Escalation of Ukraine-Russia conflict pushes corn and wheat. But will it last?

Black Sea, Black Swans. Over the past two years, escalating war headlines between Russia and Ukraine have become less impactful to market movement, particularly for corn and wheat futures. However, this week’s renewed provocation seems to have sparked a resumption of market impact, outside markets included. With volatility potentially increasing based on these headlines, it proves the importance of having a marketing plan.

A “Black Swan” event is a term used to describe an unexpected occurrence that can have significant market consequences. While Black Swan events are extremely rare, they cause major economic disruptions as they are unforeseen. Similar to the idea of a black swan — a bird that was once thought not to exist because all known swans were white. The outbreak of the Russia/Ukraine conflict in February 2022 is an example. Once the invasion occurred, the broad market faced a vast array of possible outcomes. While the conflict hasn’t ended, the two-year war has become “old news” to the broad market until this past week. Now, the market is faced with yet another array of possible outcomes.

Historically, markets have seen hundreds of wars and the data points to the market being resilient. Wars typically result in short-term volatility, but the dip is ultimately bought. However, the prospect of nuclear weapons being used is not something seen in modern history. The move also comes when outside markets are severely overbought. Technical pull backs in the U.S. stock market have been rare this fall but are necessary for a healthy uptrend. Is this just another healthy pull back or more?

Interestingly, it will go back to inflation and more importantly food and energy costs. It seems a given that the recent headlines will renew war premiums across commodities, especially as traders contemplate possible significant changes to supply chains. Potential sanctions, higher shipping costs and delays could make renewed waves across commodity markets as well. For U.S. grains, that could result in higher futures prices and also continued demand.

In 2022, grain futures initially rallied on the war break out before peaking in July. Since then, grain futures have been in a downward trend as inflation also came into play. With that, it’s easy to see why any major world conflict, at this point, will make it more difficult for central banks to manipulate the financial environment toward a soft landing. This makes monitoring central bank actions important moving forward. Particularly, if commodity markets rally from an initial war premium. In my opinion, inflation isn’t going away anytime too soon.

We wish war on no one, but both wheat and corn futures have been lacking a significant event to spark Fund buying. Will recent escalating tensions renew the Funds buying interest? It could. In 2022, the Funds were long corn and wheat ahead of the war outbreak. Ahead of the conflict outbreak in February 2022, the Funds were already net long 354,436 corn contracts. The Funds then peaked their long positions in both corn and wheat in March 2022 before selling took place leading to their current position. As of this past week, the Funds are only long corn at 109,989 contracts. That’s a stark difference but may result in large fund buying if tensions continue to escalate. Especially if outside markets remain volatile and traders flee to less risky assets. This past week the action was seen in gold. Maybe grains will be the next commodity of interest.

Of course there are other caveats to a similar 2022 market scenario playing out. Inflation is already an issue in 2024 and ending stocks of major grains remain ample. However, with Ukraine being a top global exporter of corn and wheat and Russia dominating the global wheat market it may not matter. People need to eat, which will force countries to source their needs elsewhere. But just remember, global conflicts get political. With many global elections taking place in 2024, including in the U.S., politics will certainly impact price discovery. Just remember, the bulls need to be fed and war headlines aren’t always the best feed. Global relations are always at play and subject to change quickly.

While war headlines have captured the attention of the market and trades this week, unfortunately the conflict needs to continue to escalate resulting in a fundamental shift. Right now, grain futures are generally stuck in a sideways trading range. We have been here before, with one day’s headlines sparking movement that is quickly forgotten the next. With that being said, it reiterates the importance of a marketing plan as a single day’s missed action could easily result in steep losses. With heightened broad market volatility expected as we enter 2025, it’s important to get a plan in place now.

Whether the “Black Sea, Black Swan” is the catalyst to turning grain markets higher or not, it’s important to maintain a marketing strategy. Eventually, the market will turn. In the meantime, take advantage of cash sales and keep rolling floors in place.

Allison Thompson is a market analyst with The Money Farm in Ada, Minnesota. She previously has worked as a Farm Business Management instructor and is active on her family’s Mahnomen, Minnesota, grain farm.

Tags: Ukraine, Russia, corn, grain, wheat, Black Sea, futures, Market