This latest round of saber-rattling between the U.S. and North Korea is a reminder that the world is an uncertain place. Despite the impressions one is left with when watching the evening news, we have actually gone through a lengthy time of unprecedented peace when viewed in terms of a major global conflict. However, threats do exist, as shown in this latest exchange of words.
If events escalate, what can we expect for grain markets? It’s difficult to say with certainty – if tensions start to rise then the range of potential outcomes can be wide and of major consequence – but at its core we need to stay focused on the underlying supply and demand fundamentals.
Consider the market reaction to Russia’s annexation of Crimea in its conflict with the Ukraine. Wheat prices immediately spiked as both countries are major supplies in global export markets. The concern was that movement may be impaired and production decline. However, the initial kneejerk reaction overlooked the fact that the event did little to reduce the crops since most of the skirmishes took place in urban areas, while the need for foreign exchange kept both countries as motivated sellers of grain. In fact, the decline in the value of both the Ukrainian Hryvnia and the Russian Ruble was actually a bearish influence as they became even more competitive. Prices eventually reacted to this reality and turned decidedly lower.
The key point is that the main underlying fundamental dynamics for the grain markets didn’t change, even though the conflict was highly disruptive for the countries as a whole, particularly for the Ukraine.
North Korea is not a significant player in any global grain markets, as they are neither a noteworthy buyer or seller. Unless any potential conflict spilled over into disrupting trade with China or other major trading nations, or escalated into unthinkable levels, the longer term impact on global grain prices is likely to be negligible.