Wheat Soars to 23-Month High as Russia Bans Exports; Rice Gains

Wheat extended a rally to the highest price in almost two years on concern that other nations may follow Russia’s export ban, and may reach $10 a bushel, a price not seen since the global food crisis in 2008. 

Russian Prime Minister Vladimir Putin said that Kazakhstan and Belarus should also suspend shipments as Russia’s ban was announced yesterday from Aug. 15 to the yearend. 

“It’s got $10 written all over it,” said Peter McGuire, managing director at CWA Global Markets Pty, who correctly forecast Aug. 3 the surge to $8.50. Wheat last traded at $10 in March 2008, and a gain to that price would be a 23 percent advance from yesterday’s close. 

Russia’s ban may benefit rival producers, including the U.S., the largest exporter, Australia and Argentina, according to Rabobank Group. 

Wheat prices have doubled in less than two months as drought slashed the harvest in Russia, the third- largest grower, and rains cut Canadian output. The surge may herald a new food crisis as corn and other staples jump, warned a trade group from Indonesia, Asia’s top wheat buyer. 

“We believe that the rally in wheat prices is overdone, but would not short wheat,” Morgan Stanley analysts including Hussein Allidina said in a note to investors, referring to making bets that prices may drop. Other wheat-producing countries may opt to limit exports, potentially boosting prices, even though global wheat stockpiles are ample, they wrote. 

Wheat for December rose as much as 6.5 percent to $8.68 a bushel on the Chicago Board of Trade, taking gains for that contract to 25 percent this week. The best-performing commodity this year on the UBS Bloomberg CMCI Index, ahead of coffee and nickel, traded at $8.5875 a bushel at 3:34 p.m. in Singapore.

‘Domino Reaction’

“There will be a domino reaction and we expect corn demand will rise, pushing prices higher,” Franciscus Welirang, chairman of the Flour Mills Association in Indonesia, said by phone.

“It’s the end of cheap wheat.” Corn futures gained as much as 1.1 percent to $4.2275 a bushel today, taking gains over the past year to 24 percent. 

Wheat has rallied as a heat wave in Russia, dry weather in Kazakhstan, Ukraine and the European Union, and flooding in Canada hurt crops. 

Russia’s drought is also threatening sowing plans for winter grain, the national weather center has said. 

Wheat reached a record $13.495 in February 2008, part of a surge in prices that sparked food riots from Haiti to Egypt. Still, concern that lower-than-expected wheat output may contribute to a food crisis is “unwarranted at this stage,” the UN’s Food and Agriculture Organization said on Aug. 4. 

‘The World Listens’

“When Putin speaks, the world listens,” said McGuire at commodity trader CWA, referring to the possibility other nations may also curb shipments. The biggest gainers would be U.S. farmers because they have the supply to meet demand in the global market, he said. “They’ll all be driving Lamborghinis.” 

Japan, Asia’s second-largest wheat buyer after Indonesia, may look for increased shipments from the U.S., said Charlie Utsunomiya, director at the Tokyo office of U.S. Wheat Associates. Japan buys Russian wheat and barley for animal feed. 

The Russian ban will “rattle the markets for the next several months” and boost demand for stockpiles from the U.S., Bob Young, the chief economist at the American Farm Bureau Federation, said yesterday from Washington.

Halting Russia’s wheat shipments would be “appropriate” to contain domestic prices that jumped 19 percent last week, Putin said. The country shipped an estimated 17.5 million metric tons of wheat in the year to June 30, accounting for 14 percent of global trade, according to the U.S. Department of Agriculture. 

Kazakhstan, Russia’s partner in a customs union, exported 7.5 million tons in the year ended June 30, while Belarus, another partner, shipped 400,000 tons, according to the USDA. Ukraine accounted for 9.2 million tons in the same year, it said.

Rival Shippers

Wheat buyers will turn to the U.S., Australia and Argentina for supplies as Black Sea region output slumps, Rabobank’s London-based analysts Luke Chandler and Doug Whitehead wrote in a report. Global stockpiles remained sufficient to offset recent production downgrades, Rabobank said. 

World wheat stockpiles may fall 2.5 percent to 192 million tons by June as the dry weather hurts the outlook for crops in Russia, Kazakhstan, Ukraine and the European Union, the International Grains Council said on July 29, reversing a forecast for higher inventories.

Exporters from the Black Sea, including Ukraine, may have no choice but to halt shipments unless the region gets enough rain, CWA’s McGuire said. “If it gets hotter for longer, then it’s going to destroy the crop,” he said.

Putin told a government meeting in Moscow yesterday that Russia has “sufficient reserves” of grain, “but we must prevent domestic prices from rising, preserve cattle herds and build up reserves.” The ban will also apply to barley, rye, corn and flour. Source: Bloomberg