Wheat Futs Surge To Three-Year High As JPMorgan, HSBC Warn Global Food Shock Is Brewing

Wheat futures surged to a three-year high on Wednesday morning as traders repriced a nasty convergence of supply risks across the global agricultural supply chain. Ongoing drone and missile attacks on critical Black Sea shipping and port infrastructure are constraining Russian and Ukrainian exports, while severe Northern Hemisphere heat waves and disruptions in the Strait of Hormuz are amplifying concerns that another food-inflation cycle could rear its ugly head next year.

Bloomberg reported that the most-active Chicago wheat contract jumped as much as 2.4% to $7.2025 a bushel, its highest level since July 2023. Futures have gained about 12% so far this month.

Russia and Ukraine, two of the world's most important breadbaskets, account for more than a quarter of global wheat exports and are also major suppliers of corn, barley, and sunflower oil. The Black Sea conflict has escalated since early July, with both sides targeting bulk carriers, ports, and other infrastructure critical to transporting grain and other agricultural products to the rest of the world.

Earlier, Ukrainian President Volodymyr Zelenskyy said Moscow rejected Kyiv's proposal for a ceasefire covering ships carrying agricultural goods through the Black Sea. In return, Russia sought guarantees that Ukraine would stop attacking its energy infrastructure, including refineries.

Zelenskyy said Kyiv was prepared to discuss an energy truce, but only on a reciprocal basis. Reuters reported that the two sides remain divided.

Troubling new estimates suggest Ukraine's agricultural exports could collapse by 54% to about 29.6 million tons during the 2026-27 marketing year, down from an earlier estimate of 64.4 million tons. Wheat shipments alone could plunge by 53% to 8.3 million tons.

Meanwhile, Russian wheat exports in August are also expected to fall by more than 50% from a year earlier. Several terminals at Novorossiysk, Russia's largest Black Sea grain-export hub, suspended operations after sustaining damage in a Ukrainian one-way attack-drone strike. The two damaged facilities have a combined annual export capacity of more than 14 million tons, according to S&P Global.

Port bottlenecks are also growing. Bloomberg reported today that as many as 70 ships were queued near the Danube's Sulina Canal. Massive shipping delays have sent freight costs surging.

More broadly, the Bloomberg Agriculture Spot Index, which tracks 10 major crop products, has also jumped to a three-year high. 

Wall Street warnings that a food crisis could erupt as soon as next year are growing louder.

The latest came from HSBC economist Jamie Culling, who covers Australia, New Zealand, and global commodities. In a Tuesday note titled "Food Prices Rising Due to the Weather and Wars," Culling warned that global agricultural "buffers are now starting to run down."

Last week, JPMorgan global economist Nora Szentivanyi issued a similar warning, saying the next global food crisis "won't be short-lived."