Wheat prices spiked on Monday (Oct. 31) as Russia's withdrawal from the Black Sea grain agreement over the weekend ignited fresh fears about global food security.
But experts say it's too early to know whether the price increase is a short-term market reaction, or the start of a longer, more sustained trend toward higher grain prices.
"Definitely the prospect of seeing more disruptions on the supply of grain and oilseeds coming out of Ukraine is putting a little pressure on prices right away,'' said J.P. Gervais, vice-president and chief agricultural economist at Farm Credit Canada.
"And if markets get a sense this is going to be an issue in the mid to long-term, we might see prices move up again. But I think it's a bit too early to tell.''
Wheat futures jumped close to 6% Monday morning on the news that Russia would reinstate a blockade preventing wheat shipments from leaving Ukraine ports.
Prior to this latest development, the Black Sea grain initiative had been a rare example of co-operation between Ukraine and Russia since Russia's invasion in February. Brokered by the United Nations and Turkey, it has allowed more than 9 million tonnes of grain in 397 ships to safely leave Ukrainian ports.
The grain agreement has brought down global food prices about 15% from their peak in March, according to the U.N., and the U.N. secretary-general had urged Russia and Ukraine to renew the deal when it expires Nov. 19.
As of the end of October, wheat prices have come down almost 30% from the all-time highs reached in the spring. At that time, there were fears the war could mean grain might be unable to move out of the critical export region of Ukraine at all, says Jon Driedger of Manitoba-based LeftField Commodity Research.
"That's how markets initially responded and prices moved lower as grain started moving out,'' Driedger says. "So now, as you would expect, we're seeing wheat prices once again considerably higher here earlier in the week. It's an initial response to what potentially is going to be less movement of grain out of Ukraine.''
However, Driedger emphasizes there's still a great deal of uncertainty about what the latest development actually means.
On Monday, Ukraine said a dozen ships had managed to set sail anyway, including one carrying wheat to drought-stricken Ethiopia.
Canadian farmers -- who enjoyed significantly higher crop yields this harvest season than in 2021 -- should see some degree of benefit from this current spike in prices, Driedger said. Even though prices have retreated from their spring highs, they remain elevated compared to historical averages, he explained.
But he pointed out that farmers are by no means reaping windfall profits this year. While commodity prices are high, economy-wide inflation means agricultural input costs have also soared.
"Farmers have definitely benefited but there's also no question that their cost of doing business is much higher than it has been as well,'' Driedger said. "Fuel prices, fertilizer, the cost of machinery -- all those things are elevated as well.''
On Monday, shares in Saskatoon-based fertilizer giant Nutrien Ltd. closed at $115.11, up 2.69%, a stock movement that was also likely directly related to Russia's withdrawal from the grain agreement, said Edward Jones analyst Matt Arnold in an email.
"It is too early to know if the withdrawal will have any impact on fertilizer markets, but it is fair to say this news increases the risk of lower global fertilizer supplies,'' Arnold said. "It certainly doesn't increase the likelihood of more supply.''
Nutrien, which is the largest fertilizer producer in the year, raked in a record US$5 billion in profits in the first half of this year as the war in Ukraine destabilized agriculture markets.
The company is expected to release its third quarter earnings on Wednesday (Nov. 2), after markets close.
"The longer supplies are constrained and fertilizer prices remain elevated, the longer Nutrien's earnings will benefit,'' Arnold said.