Todd's Take

Commodity Prices Face Bullish Trifecta From Russia-Ukraine Conflict, Drought, Pandemic

Todd Hultman
By  Todd Hultman , DTN Lead Analyst
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Spot Chicago wheat just surpassed its highest price of all time, forced upward by an unusual series of events that have disrupted production and threaten this year's crops. (DTN ProphetX chart by Todd Hultman)

I've always been fascinated by long-term price charts and the lessons they show about how people behaved through different times in history. One of the first things you notice from looking back over a century of prices is that financial assets, like stocks, tend to do best during times of peace, and physical assets, like crops and energies, tend to rise most during times of war.

Obvious examples for corn show big jumps from roughly 50 cents per bushel before World War I to over $2.00 per bushel in 1917. Prices fell below 50 cents again in 1932, during the depths of the Great Depression, but surged to nearly $3.00 per bushel in 1947, shortly after World War II.

The logic of how behavior differs during times of peace or war seems straightforward. In times of peace, obstructions to production are minimal and surpluses of physical assets are more common. Businesses that add value to plentiful goods tend to be profitable in peaceful times, hence the price of financial assets like stocks go up, while the prices of commodities tend to underperform.

War, on the other hand, disrupts production and the movement of goods. Of course, war is not the only thing that makes commodity prices go up. The price explosion that took spot corn prices from roughly $1.25 per bushel in 1972 to $4.00 by the fall of 1974 wasn't necessarily war-related, but was heavily influenced by drought, first in Russia and later in the U.S.

Russia's sneaky purchase of one-fourth of the U.S. wheat harvest in 1972 played a big part. President Nixon's decision to take the U.S. dollar off the gold standard in 1971 also added a bullish dimension to commodity prices in the 1970s as the new currency wasn't well accepted.

More recently, we have learned that a strong bullish influence of commodity prices can come from a global pandemic. Thankfully, we only have one example in modern history, but much like war, the coronavirus pandemic that emerged in early 2020 quickly cost the U.S. economy over 25 million jobs, shut down 25% of U.S. oil production and snarled up shipping traffic around the world with ports that are still congested.

Two years later, U.S. employment has rebounded, but is still down 1.2 million jobs; U.S. oil production is down 1.4 million barrels per day (bpd) from pre-pandemic levels, and ports remain congested.

In 2021, drought sharply reduced wheat crops in the U.S. and Canada and, in early 2022, trimmed back soybean crops in Brazil and Argentina.

If those bullish influences weren't enough, on Feb. 23, 2022, Russia attacked Ukraine, the world's leading producer and exporter of sunflower oil, third largest exporter of barley and fourth largest exporter of corn and wheat.

Pandemic, drought, and now, war. It is difficult to find a more bullish trifecta for commodity prices in modern history, far beyond anything the Federal Reserve can fix with a few rate hikes, and we can't rule out the possibilities of further drought in 2022. For the challenges we face in 2022, peace and production are the only genuine cures, two essentials that currently look elusive.

A shorter version of this article will appear in the April issue of Progressive Farmer:…


Comments above are for educational purposes only and are not meant as specific trade recommendations. The buying and selling of grain or grain futures or options involve substantial risk and are not suitable for everyone.

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Todd Hultman