Wheat's Advance Revives Food Crisis Concern

The world may face another food crisis if the surge in wheat sparked by Russia’s export ban drives the prices of other staples higher, according to an executive from Indonesia, Asia’s largest buyer of the grain. 

“There will be a domino reaction and we expect corn demand will rise, pushing prices higher, and feed industries will buy more corn and soybeans,” Franciscus Welirang, chairman of the Flour Mills Association in Indonesia, said in an interview today. “It’s the end of cheap wheat.” 

Russia’s ban, announced yesterday as supplies shrink in a heat wave, has helped wheat to double in less than two months and sent the grain to the highest price since August 2008. Wheat touched a record that year, along with rice, pushing up food costs and triggering riots in poorer states including Egypt. 

Another global food crisis “is what we worry about in the fourth quarter or first quarter of next year,” Welirang said by phone. Corn and wheat can be used interchangeably in making livestock feed. 

The Food and Agriculture Organization said on Aug. 4. - before Russia’s ban on wheat exports -- that concern that lower- than-expected wheat output may contribute to a food crisis is “unwarranted at this stage.” The United Nations agency said global wheat stockpiles were higher than in 2008. 

Wheat’s Jump

Wheat for December delivery rose as much as 6.5 percent to $8.68 a bushel in Chicago, 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 $8.11 a bushel at 5:20 p.m. in Singapore, 0.5 percent weaker. Corn traded at 4.1325 a bushel, 1.1 percent lower. 

Stock in PT Indofood Sukses Makmur, Indonesia’s biggest maker of instant noodles, fell as much as 5.2 percent to 4,100 rupiah in Jakarta today as wheat surged, raising production costs for the company. Welirang is also a director at Indofood, which ended at 4,150 rupiah, the lowest close since June 30. 

The ban on exports from Russia and possibly from other parts of the former Soviet Union will dry up the supply of cheap flour in Indonesia, Welirang said. Southeast’s Asia’s largest economy is the biggest buyer of wheat, flour and products in Asia, according to U.S. Department of Agriculture data. 

Buyers in Indonesia may have to turn to suppliers from the U.S., Canada and Australia, which offer the grain at higher prices than exporters from the former Soviet Union, Welirang said. 

The wheat exported by Russia, Ukraine and Kazakhstan into Indonesia typically has a lower protein content than supplies from other countries, making it cheaper, he said. 

Russia, the world’s third-largest wheat grower last year, will suspend wheat shipments from Aug. 15 to yearend, Prime Minister Vladimir Putin said yesterday. Kazakhstan and Belarus should also suspend exports, Putin said. 

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. 

Demand for flour in Indonesia fell as much as 15 percent in 2008 as wheat touched an all-time high, Welirang said, without citing the volume. This time, higher prices of noodles and pasta may again curb the nation’s demand as millers pass on increased costs, he said. Source: Bloomberg