Column: Wild 2022 in grain markets sparks 2008 comparisons


Wheat grains are seen at the Farmers Cooperative Exchange during harvesting in Bessie, Oklahoma, US, June 12, 2019. REUTERS/Nick Oxford

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NAPERVILLE, Ill., June 22 (Reuters) – Chicago wheat prices inked new records this year, trading at levels seen only in 2008. The recent state of the economy and ballooning commodity prices have many market participants comparing 2022 with 2008.

There are key differences between the 2022 and 2008 setups, the most prominent being a war between two major commodity exporters, though higher inflation rates combined with the economy’s strong pandemic recovery add another unique flavor this year.

The 2008 comparison is intriguing because it demonstrates an extreme case of price correction after a spike similar to that of 2022, especially given the signals and talks of a possible recession over the next year.

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Chicago wheat prices corrected below the 2008 starting levels by mid-year, though they remain elevated now. However, futures this week broke below $10 per bushel, still record-high for the date but near some of the lowest levels since Russia’s invasion of Ukraine.

In the last quarter of 2008, wheat futures traded between 30% and 45% below the year’s start, the worst such downfall in at least three decades. Gains of more than 40% had been observed by March 2008, though the yearly climb exceeded 60% by early March 2022.

Most-active wheat is still 28% above where it started 2022, the biggest rise since 1988. CBOT corn is up almost 30% since Jan. 1, similar to the year-ago rise, though gains had exceeded 70% by late June 2008.

As in 2008, big market moves have been a cornerstone in wheat in 2022, though market participation is lighter, indicating the high degree of uncertainty among speculators in particular.

Open interest in Chicago wheat futures is the lightest for the date since 2005, down 19% from last year and down 25% from two years ago. Open interest in late June 2008 was a three-year low for the time frame, but well above all previous years otherwise.

The theme of market participants being perhaps spooked by the volatile nature of the current markets is also present US crude oil futures, where open interest sits at a seven-year low for the date, down 30% over the year.

Crude oil futures also observed an epic falloff in late 2008 as the economy slipped into a recession, in the last two months of the year trading between 30% and 60% below 2008’s starting point. Oil has failed in 2022 to surpass 2008 prices.

Some banks on Tuesday increased their chances of a US recession over the next year, with Goldman Sachs at 30% from 15% previously and Morgan Stanley at 35%. read more

FUNDAMENTAL SUPPORT

The early 2008 wheat spike is linked with factors like rising energy prices, the increase of crops used for biofuels, and a squeeze on world rice supplies. Global stocks wheat-to-use in the major exporters reached an all-time low of 13% in 2007-08, down from 22% two to three years earlier.

A notable recovery for 2008-09 was predicted by mid-2008, and that panned out, keeping wheat prices more subdued throughout 2009. But 2022-23 stocks-to-use in major exporters is forecast close to the 2007-08 records, maintaining fundamental support for elevated wheat prices.

The Russia-Ukraine war has introduced unprecedented to grain markets since Ukraine’s ports have been practically inoperable since late February. Wheat, corn and sunflower oil have been trapped in the country, and peacemaking attempts by other nations have been unfruitful so far. read more

The importance of Black Sea grain exports has risen substantially in recent years, displacing once-dominant US shipments.

Around 2008, the United States was accounting for about 60% of world corn exports, 23% of wheat and 43% of soybeans. In 2022-23, those shares are predicted at 33%, 10% and 35%, respectively.

In mid-2008, US corn stocks for the 2008-09 marketing year were predicted falling to half the previous year’s levels, to more than decade lows, adding to market anxiety. Demand was vastly overstated early on, though, and actual stocks came in a bit above the prior year and in line with other recent years.

The outlook this year is much different, as forward US and global corn supplies relative to demand are seen largely unchanged from the current levels. However, the balance sheet is still a bit tighter than the longer-term average.

Karen Braun is a market analyst for Reuters. Views expressed above are her own.

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Editing by Matthew Lewis

Our Standards: The Thomson Reuters Trust Principles.

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

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