According to veteran strategist David Roche, grain prices are expected to increase by 13-15% annually over the next two years, contrary to the market consensus. Roche disagrees with the optimism surrounding the supply of wheat from the U.S., Russia, and Ukraine, citing risks such as disruptions by Russia, climate change impacts, and the El Nino weather pattern. He believes that these factors will cause disruptions to the supply side of the grain markets, while the demand side continues to grow due to increasing global population and food security concerns. Roche expects it may take up to three years to see returns on grain investments but is prepared to wait it out.
Roche’s prediction comes as wheat prices have fallen by around 29% year-to-date, reaching their lowest levels since September 2020. Short positions, or bets on prices to fall, have also reached a three-month high. The decline in prices was influenced by higher-than-expected production and stockpiles reported by the U.S. Department of Agriculture, as well as signs that Ukraine is finding alternative export routes despite Russian attacks on its ports. Additionally, Russia, the world’s largest grain exporter, has produced large harvests that analysts expect to navigate export blockades.
Roche argues that there are additional factors that could push grain prices higher. For instance, low water levels in crucial waterways like the Mississippi River, along with Russian volatility and the El Nino weather pattern, are expected to disrupt the supply side of the market. Roche believes that the combination of these risks and increasing global temperatures will lead to lower crop yields and constrained grain supply. As a result, Independent Strategy, Roche’s firm, expects the stock-to-usage ratio for wheat to decline and projects a 13-15% annual increase in wheat prices until 2025.