Russia-Ukraine Commodities Monitor 001: Wheat and Aluminum

Russia-Ukraine Commodities Monitor 001: Wheat and Aluminum

Throughout the ongoing Russo-Ukrainian crisis, on top of complicated geopolitical events unfolding, global markets have undergone dramatic shifts and experienced high levels of volatility which has made investors balk. Many major news outlets have attributed this market activity to the inability of the financial community to quantify market uncertainty and predict the future of crises like this one. These trends have been observed at scale in commodities markets.

Our view, at Global Guessing, is that commodities markets and futures markets for said commodities are, at their core, the manifestation of conditional forecasts which are predicated on predictions regarding larger geopolitical activity.

As such, the goal of this article is to marry geopolitical events, forecasts, and market activity to better understand the drivers of market movements and how crowd forecasts can aid in providing clarity in environments of widespread uncertainty.

Today we are looking at the two commodities markets we have been tracking on our Russia-Ukraine Forecasting Guide: wheat and aluminum.


Since the start of Russia’s military campaign in Ukraine, wheat has arguably been the most heavily scrutinized and followed commodity. And there is a good reason for this. Combined, Russia and Ukraine supply close to one third of the world’s wheat and barley exports. Furthermore, several countries have wheat import concentration with these countries, namely Egypt (70%), Tunisia (80%), and Lebanon (60%).

While Egypt is generally viewed as a relatively stable and growing economy, with a population over 100 million, the latter two countries have undergone severe political (and economic) turmoil over the last two years. A shortage of wheat, the backbone of many developing economies, and especially so for Arab nations which rely on bread as a cultural staple, poses both economic and political risks.

On our Russia-Ukraine forecasting resource page we have tracked forecasts hosted by Good Judgment Open on the question “Will US What Prices be >$1,075 by June 15.”

On February 26th users forecasted a 10% likelihood that wheat prices would surpass $1,075 by June 15th. By March 9th, just over a week later, users had raised their collective forecast nine-fold, resulting in a 90% probability that wheat would surpass  $1,075. As of March 14th, that number has regressed to 64%.

Interestingly, this market about wheat prices maps inversely with the several markets which forecast the end of this conflict. As the likelihood of a peace deal or a ceasefire decreased, forecasts on the price of US wheat rose. And similarly, as the crowd has become more confident in a peace deal or ceasefire, or even a meeting between Putin and Zelensky, forecasts on wheat prices have seen dramatic falls.

While correlation does not denote causation, it seems reasonable that high wheat prices indicate a belief that this conflict will protracted, while signs of potential peace in Eastern Europe seem to lower confidence in wheat’s future (no pun intended).

Now this observation raises a slew of additional questions, namely what is driving these forecasts around peace between Russia and Ukraine? For those answers, you should read tomorrow's newsletter about constraints on a potential peace and what each side will require if negotiations are to be successful.

In this way you will be able to track the factors which are critical to a peace deal, which will drive your forecast on how this conflict will end, which will in turn allow you to have a perspective on how US wheat prices will move in the coming weeks.

It is important to mention that there are other factors affecting wheat’s rapid price spike in 2022, including significant growth momentum through 2021 due to Covid-19 related supply-chain shortages. Anticipatory buying ensued of products tangential to wheat, like corn and soybeans, especially from deep pockets like China which also continued to prices rising. However, these commodities prices reached a point where even China committed to more domestic production of these goods over buying them, lowering the country's demand and reliance on imports in these sectors. The key drivers to understand wheat’s current price movement lies in geopolitical circumstance which is what we’re tracking at Global Guessing.


Compared to wheat, the story of aluminum's recent price activity is vastly more complicated.

On our Russia-Ukraine forecasting resource page we have also tracked forecasts hosted by Good Judgment Open on the question “Will Aluminum Prices be >=$3,200 by April 29th?” On February 7th users forecasted a 7% likelihood that aluminum would reach this price point by the of April. As of March 15th, this forecast has quickly and steadily risen to 81%. And it seems primed to continue rising.

The first thing to note about the movement of this forecast is that, whereas the wheat market seems to have risen quickly and later corrected, this aluminum price market rose steadily over the course of six weeks and appears to be more confident about its assertions.

So what accounts for this steady confidence?

For one, Russian company Rusal is the second largest producer of aluminum in the world, only behind China’s Hongqiao Group. Since the start of Russia’s invasion into Ukraine, the company has weathered a $6 billion sell-off in Hong Kong, and halted trading in Moscow after the company’s stock fell 42%. And despite claims from spokespeople that the company’s ability to transact has not been hindered by Western sanctions, its largest domestic bank lenders have been hit by the US Treasury Department. As such, concerns around supply are warranted.

On the demand side of this equation, low supply (both from the aforementioned Covid-19 drivers as well as the ongoing conflict in Ukraine) has resulted in an emptying of aluminum coffers globally. In turn, the need to restock supplies has been rampant. Additionally, innovation in the auto and aerospace sectors have driven a need for aluminum.

While aluminum's price activity does not cleanly map onto any military or political forecasts which we have been tracking, that in itself is a signal. This confidence may stem from forecasters believing that Western sanctions have inflicted some permanent or long-term damage to Russia’s economy that justify higher aluminum prices in the future, something we explored at Global Guessing. This confidence may also come from a lack of substitute goods, whereas there may be some for wheat.

Whether the former or the later, watching aluminum’s price movement on our resources guide, and understanding any decrease in forecaster belief within the context of the big-picture forecasts on this Russia-Ukraine conflict should provide you with a stable framework for understanding what is driving this increase in price assumptions. And again, we encourage you to read tomorrow's newsletter about constraints on a potential peace deal, to better understand our views on sanctions and Russia’s economic viability post-war.

We are not currently tracking forecasts on other key commodities tied to this conflict, such as oil, nickel, or natural gas…but we can! If you would appreciate having more commodities markets on our resources page, or more articles like this linking those commodities to our geopolitical forecasts, reach out to us on Twitter or leave a comment below with our new comment feature!