Wheat Soars to 23-Month High as Russia Bans Exports; Rice Gains
By Luzi Ann Javier, Maria Kolesnikova and Jeff Wilson - Aug 5, 2010
Wheat extended a rally to the highest price in almost two years on concern other nations may follow Russias export ban, and the grain may reach $10 a bushel, a price not seen since the global food crisis in 2008.
Russian Prime Minister Vladimir Putin said Kazakhstan and Belarus should also suspend shipments as Russias ban was announced yesterday from Aug. 15 to the yearend. Its 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 yesterdays close.
Wheat has doubled in less than two months as a heat wave in Russia, the third-largest grower, dry weather in Kazakhstan, Ukraine and the European Union, and flooding in Canada has ruined crops. Russias drought is threatening sowing plans for winter grain, the national weather center has said.
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 delivery rose as much as 5.1 percent to $8.565 a bushel, taking gains this week to 23 percent, and the contract traded at $8.53 on the Chicago Board of Trade at 9:41 a.m. in Singapore. Wheat is the best-performing commodity this year on the UBS Bloomberg CMCI Index, ahead of coffee and nickel.
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. Theyll all be driving Lamborghinis.
Halting Russias wheat shipments would be appropriate to contain domestic prices that jumped 19 percent last week, Putin said in Moscow. Kazakhstan and Ukraine were forecast to each ship 8 million tons of wheat this year, according to the U.S. Department of Agriculture estimate on July 9.
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 UNs Food and Agriculture Organization said on Aug. 4.
This will be a catastrophe for farmers and exporters alike, Kirill Podolsky, the chief executive officer of Valars Group, Russias third-biggest grain trader said yesterday. Valars will stop exports immediately because shipments may be held at customs until the start of the ban, Podolsky said. As of today, Russia has no grain market, he said.
Exporters from the Black Sea may have no choice but to halt shipments unless the region gets enough rain, McGuire said. If it gets hotter for longer, then its going to destroy the crop completely, he said.
The U.S. Department of Agriculture may pare its estimate on the nations wheat inventory at the end of the 2010-2011 season by 12 percent to 964 million bushels, from 1.093 billion bushels last month, as exporters boost shipments to make up for lower supply from other countries, Allendale Inc., a farm marketing adviser and broker, said in an e-mail today.
That may push the global ending stocks to 180 million metric tons, compared to the USDA estimate of 187 million tons last month, Allendale said.
Cargill Inc., the largest U.S. agricultural company, said implementing trade barriers in response to higher wheat prices and lower yields exacerbates supply problems.
World wheat stocks are higher than they were during the wheat-price spikes in 2008, said Mark Klein, a spokesman for the Minnetonka, Minnesota-based company. Such trade barriers further distort wheat markets by making it harder for supplies to move from areas of surplus to areas of deficit.
Putin told a government meeting in Moscow that Russia has sufficient reserves of grain, but we must prevent domestic prices from rising, preserve cattle herds and build up reserves. The ban also applies to barley, rye, corn and flour.
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.
To contact the reporters on this story: Luzi Ann Javier in Singapore at firstname.lastname@example.org; Maria Kolesnikova in Moscow at email@example.com; Jeff Wilson in Chicago at firstname.lastname@example.org