The price of wheat is way up. You can see that the recent spike was double its September level:
In a normal world, higher prices encourage more production. Now though, an economist might say that supply is inelastic.
World Wheat Worries
World wheat markets had been dealing with Ukraine’s labor and fuel shortages, unavailable trains, and blocked ports. Russian blockages at the Kerch Strait (connecting the Azov and Black Sea) further reduced the supply of wheat:
Then, adding to the massive shortfalls, last week, Ukraine banned its food exports. Saying they needed to be sure they could feed people as the war intensified, the list of prohibited exports included wheat, live cattle, millet, sugar. As a result, Ukraine’s customers in the Middle East and Africa will have to get their wheat elsewhere. Australia’s bumper crop is a possibility.
Russia and Ukraine grow approximately 30 percent of the world’s traded wheat. You can see below that Egypt and Turkey were two destinations for Ukraine’s wheat:
As a result, food insecurity among poorer populations will escalate. In sub-Saharan Africa, food occupies a 40 percent slice of the consumer spending pie:
Our Bottom Line: Wheat Supply Inelasticity
An economist might say that the world’s wheat supply has been inelastic. All they mean though is that there has been a limited response to higher prices.
For world exports of wheat in 2019, Russia and the U.S. were the leading producers:
However, it’s tough for us to increase our wheat supply. Yes, topping last year’s record low levels, American farmers might plant more wheat. But if the draught continues in the West and Northern Plains, yields will remain relatively low. A second possibility is the 21 million (or so) unused acres in the conservation reserve program. But the land is marginal. Another hope is that farmers could switch to wheat. Some have said they might. But most are receiving higher prices for what they already grow.
Where are we? We can return to our title.
My sources and more: During yesterday’s walk, PIIE’s Trade Talks podcast told me all I need to know about wheat. And then I discovered there was more. This IMF Blog broke down the world’s wheat buyers and Ana Swanson, one of my favorites, wrote this article. Meanwhile, the Daily Mail had the story of the shipping blockade and WSJ had more of the facts.The most insight on a world food crisis though was from Politico.