Briefs: Wheat surges to highest since 2008 on fears of supply shortage

Wheat prices extended their meteoric rally, soaring past US$11 a bushel to the highest level in 14 years, as Russia’s invasion of Ukraine brings shipments from one of the world’s biggest growing areas to a virtual standstill.

The war and the implications of sweeping US and European sanctions on Russia have upended Black Sea supplies at a time when global stockpiles are already tight. Ukraine and Russia ship more than a quarter of the world’s wheat exports, and the fighting has closed ports, halted transport and severed logistics. The war also threatens planting this year in Ukraine as farmers could be involved in the fighting, and seeds and fertiliser will be in short supply.

The shortages are likely to spill over to next season, or potentially even longer. Bumper harvests in North America and other parts of Europe will be critical this summer to curb more price increases. With flows from the Black Sea region snarled by the war, buyers are considering forward contracts for Australian grain as far out as the third quarter, said top shipper CBH Group.

Wheat climbed yet again by the daily limit on March 3, jumping 7.1% to US$11.34 a bushel. Prices have soared 50% in the past month. That has helped to lift the Bloomberg agriculture index to a record (see chart) and is fuelling global food inflation. This comes at a time when oil and other commodities are also rising, forcing central banks to tighten monetary policy after years of ultra-low rates.

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Russia and Ukraine are major suppliers of corn, barley and sunflower oil too. Corn prices have risen to the highest level since 2012, while soybean oil and palm oil have reached records. In the meantime, China, the world’s biggest importer of corn and soybeans and one of the top buyers of wheat, is moving to secure essential supplies in global markets, pushing prices even higher.

Egypt, the largest wheat importer, is in a dire predicament. Russia and Ukraine delivered 86% of the country’s wheat imports in 2020, according to the United Nations, and the combination of war, fast-moving sanctions announcements and surging freight and insurance costs is hampering efforts to secure supplies. That carries extra resonance in this North African nation, where rising food costs contributed to the Arab Spring protests a decade ago. — Bloomberg

Powell’s resolve to raise rates spells further dollar strength

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Federal Reserve Chair Jerome Powell’s vow to contain inflation with higher interest rates is holding, and that may boost the dollar.

The two-year Treasury note yield surged 17 basis points on March 2 after Powell backed a quarter-point rate hike this month despite uncertainties stemming from Russia’s invasion of Ukraine. Although yields fell across the curve in Asia on March 3, overnight-indexed swaps price in more than five Fed rate hikes this year, in stark contrast to the prospect of continued accommodative policy in the eurozone and Japan.

“US inflation is unlikely to accelerate further from here, while the policy rate and bond yields will rise, so real yields have entered a sustained upward trend,” said Koji Fukaya, a fellow at Market Risk Advisory in Tokyo. “The dollar will go up.”

The US currency’s track record in largely following differentials in inflation-adjusted 10-year yields is a good indicator of strength ahead. Over the past two years, the Dollar Index has tracked the gap in yields between the US and the gauge’s members, excluding Switzerland, according to data compiled by Bloomberg. That spread has widened almost half a percentage point this year, while the dollar gained about 2%.

Fukaya sees the Dollar Index rising another 1.5% to 99 this year, compared with 97.524 on March 3.

US inflation, as measured by the personal consumption expenditures index, probably will peak at an annual 5.6% in the January-March period before slowing to 3% in the fourth quarter, economists forecast.

Eye-watering energy prices sparking a nuclear power rethink

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Soaring fossil fuel prices and rising demand for clean energy have governments around the world reconsidering nuclear power programmes that had been left for dead amid safety concerns and massive cost overruns.

The Philippines is the latest, with President Rodrigo Duterte ordering the energy department to adopt a nuclear energy programme and possibly revive a plant built almost four decades ago but never used due to safety and corruption issues. The nation joins Germany, South Korea and others in softening stances on the nuclear sector.

Anything and everything that can produce energy is being looked at now as global oil, coal and gas prices skyrocket amid uncertainty over Russian supplies. For the Philippines, shifting away from coal while improving power system reliability is expected to boost clean energy demand by 4.4% a year through 2040.

“Considering this demand and the projected depletion of natural gas resources, nuclear power will play an important role to contribute to the required capacity,” Duterte said in an executive order signed on Feb 28 and published on March 3.

German officials and energy companies are considering delaying a plan that would phase out nuclear power and close the country’s last plants by the end of the year. South Korean President Moon Jae-in recently asked officials to move on the start-up of long-delayed reactors, indicating a shift in policy on atomic power.

Nuclear power had lost favour in many countries after a small number of high-profile safety incidents, and as new construction projects in Europe and the US were plagued by delays and cost overruns. The tide has shifted in recent months, thanks to a global energy supply crunch that lifted coal and gas prices to records. That momentum has been supercharged in recent days by Russia’s invasion of Ukraine.

In the Philippines, which pays some of the highest power prices in Asia, a public perception survey in 2019 indicated that almost 79% of citizens approved the possible use or rehabilitation of the existing nuclear plant while 65% favoured the construction of new ones, according to the president.

The Bataan nuclear plant, which was completed in 1985, was about to be commissioned when Corazon Aquino mothballed it soon after becoming president in 1986. She alleged that the plant had poor safety measures and was mired in corruption involving Westinghouse Electric Corp, the contractor, and the late dictator, Ferdinand Marcos.

Duterte has been considering the revival of the controversial plant since the early months of assuming the presidency in 2016. In 2017, his administration signed an agreement with Russia to help the Philippines come up with national policies on nuclear energy. — Bloomberg