The price of wheat recently broke above $10 per bushel for the first time since 2008 on concerns over how Russia's invasion of Ukraine and the subsequent global economic sanctions on Russia will impact global wheat supply.
The last time wheat prices broke above $10 was almost exactly 14 years ago, and the year that followed was one of the worst on record for investors.
Russia's Role: Russia is currently the fourth-largest global producer of wheat, and Ukraine is the ninth-largest. Bank of America estimates Russia and Ukraine represent a combined 29% of the global wheat trade. In the past month, the Teucrium Wheat Fund WEAT has jumped roughly 48% as investors anticipated a major spike in wheat prices. In fact, the price of wheat is currently in record territory, trading at around $12.87.
When wheat prices hit their previous record highs in March 2008, market speculation and booming global demand, along with droughts in some grain-exporting nations and a tight U.S. credit market for farmers, were all partly to blame. Today, rising wheat prices are all about global supply concerns in light of the Russian invasion.
To make matters worse, concerns over natural gas supplies have nearly doubled the price of fertilizer, which could apply further upward pressure on agriculture prices in 2022. Russia is one of the world's largest fertilizer exporters.
What's Next? While economic conditions during the previous spike in wheat prices were very different from the current environment, history doesn't bode well for the stock market if wheat prices are any indication of what's to come. In the year after wheat prices last peaked at around $12 in March 2008, the SPDR S&P 500 ETF Trust SPY crashed more than 45%.
Benzinga's Take: Record high wheat prices are certainly concerning for Americans already dealing with inflation levels at roughly 40-year highs. However, the biggest threat to the stock market in the next year may be crude oil prices.
The last time wheat prices were above $10, WTI crude oil prices were also above $105 per barrel. Oil price shocks have triggered more U.S. economic recessions than any other catalyst over the past 50 years, according to DataTrek Research.
While wheat prices are certainly contributing to the economic uncertainty, it's likely investors should be watching oil prices and the United States Oil ETF USO much more closely in gauging the risk of a recession.
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