Wheat prices rising as drought-stricken Russia bans grain exports
Wheat prices skyrocketed to their highest level in two years on the news that Russia will ban all grain exports because of a severe drought. The ban on Russian grain exports removes a major supplier other countries have depended on. The ban, an attempt to control domestic prices in Russia, raises concerns about a global grain shortage. Surging wheat prices and their impact on food costs may challenge central bankers fighting to hold back inflation in their efforts to nurture a global economic recovery.
Wheat prices expected to rise further
Wheat futures soared to the maximum amount allowed on the Chicago Board of Trade (CBOT) after Russia banned grain exports for the rest of the year. The Associated Press reports that wheat share prices shot up 60 cents, or 8 percent, to $7.8575 immediately after the open of trading on Thursday. It’s the highest wheat price since August 2008. Wheat futures reached a record $13.495 in February 2008 when a global food crisis sparked riots around the world. Under CBOT rules, prices can rise a maximum of 60 cents a day, although they are allowed to rise more the following day if the 60-cent limit is hit. The price of wheat has soared since early June, and notched its biggest monthly gain in July in at least 51 years.
Russian drought shrivels crops
Russia is enduring the country’s worst drought in at least 50 years. Bloomberg reports that the Russian drought, dry weather in Kazakhstan, Ukraine and the European Union, and flooding in Canada ruined crops and drove a surge in Chicago wheat prices of as much as 92 percent since June 9. Russia’s drought is now threatening seeding for winter grain and damaging other crops including sugar beets, potatoes and corn. Russian Prime Minister Vladimir Putin told a government meeting in Moscow that halting Russian grain exports would contain domestic prices that gained 19 percent last week, faster than at the peak of the 2008 global food crisis.
Global wheat production forecast cut
Global wheat supply concerns are also increasing prices for other grains. The Wall Street Journal reports that September corn futures in Chicago rose 6.2 percent. Rough-rice futures rose 2.7 percent. The Food and Agriculture Organization cut its 2010 global wheat production forecast to 651 million metric tons. But the situation doesn’t appear as dire as 2008. In early July, the U.S. government estimated global wheat stockpiles at 187 million metric tons, well above the 124 million tons in storage during the 2007-08 global food crisis. The U.S. Department of Agriculture estimates there will be almost 30 million tons of wheat in U.S. stockpiles at the end of May 2011, a 23-year high. By comparison, in 2007-08, U.S. inventories dropped to an all-time low of 8.3 million tons.