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If futures markets don’t work, your markets won’t work

Contrary to the woeful baying by Big Agbiz, the United States — and any nation with enough money — will not run out of food this year. This can be said without reservation for two reasons.

First, war or no war, there is no global shortage of wheat, the crop today’s Chicken Littles are cluck-cluck clucking about. In the last week of March, numerous sources pointed out that the estimated shortfall in Russian wheat export sales due to its war in Ukraine will be about 7 million metric tons this marketing year.

While that sounds like a lot, 7 mmt is, in fact, 0.9% of Russia’s staggering 778 mmt 2021 wheat crop.

So, no, the loss of less than 1% of any nation’s farm production in any commodity will not lead to global famine.

The second reason the world will not run out of wheat is that when properly functioning markets operate in an open, transparent manner, price rations supply and demand. Yes, that can get coldly expensive but it also ensures the global cupboard never really empties.

And that is what happened in the wheat futures market from mid-February to early March as Russia invaded Ukraine. On Feb. 18, a week before the invasion, Chicago May wheat futures prices were $8.04 per bu. After three weeks of volatile, war-fueled trading, May futures had soared to over $12.