Veteran strategist David Roche holds a contrarian view on grain prices, disagreeing with the market’s optimism. Roche predicts a 13-15% annual increase in wheat prices over the next two years, while wheat prices are currently at their lowest levels since September 2020, and short positions on wheat prices are at a three-month high. He cites several factors that could contribute to higher prices, including disruptions in supplies due to the Russian invasion of Ukraine, climate warming impacting water levels on key river arteries like the Mississippi, and the effects of El Nino on crops. Roche also highlights food security as a major demand-side factor, given the increasing global population. Independent Strategy, the firm he leads, expects crop yields to suffer from higher global temperatures and the El Nino weather pattern, leading to a decline in the stock-to-usage ratio for wheat and consequently higher prices.
Roche’s predictions go against the current trend, as grain prices have been falling due to expectations of increased supply from the U.S., Russia, and Ukraine. The U.S. Department of Agriculture reported higher production and stockpiles than expected, further pressuring prices downward. Despite Russian attacks on Ukrainian ports, Ukraine is finding alternative export routes, and Russia has also produced large harvests, expected to overcome export blockades. However, Roche argues that disruptions caused by the Russian invasion, climate change impacts, and the effects of El Nino could outweigh the expected increase in supply, driving prices higher.
While Roche acknowledges that he may have to wait one to three years for returns on these grains, he remains prepared to sit it out due to his belief in the disruptive factors. He anticipates that global grain supply will be constrained by the ongoing conflict between Russia and Ukraine, and he expects crop yields to suffer from global warming and the El Nino weather pattern. As a result, Roche predicts a 13-15% annual increase in wheat prices, with the stock-to-usage ratio for wheat declining by around 5% per year until the end of 2025. Ultimately, Roche’s unique perspective challenges the prevailing market consensus on grain prices and highlights potential risks and factors that could impact future prices.