Wheat prices rocket as Russia halts all exports

THE price of wheat rocketed on world markets yesterday following an announcement by the Russian government that it will ban all grain exports from 15 August.

As it seeks to prevent inflation in the cost of its own food supplies, the ban will even include sale contracts that have already been signed.

Last year, Russia supplied almost a quarter of all traded wheat in the world market and has previously been on record denying it would ever close the export door.

Markets reacted immediately to the news with Chicago December wheat trading up to the daily limit of $22 per tonne and ending at $299 per tonne.

In the UK, by mid-afternoon, the November futures market had had gained 16.50 per tonne ending up at 168 per tonne.

Less than six weeks ago, the same market was operating at just over 100 per tonne, a level that it had been on since late last year.

Many UK producers have taken contracts on a percentage of their crops at that level and will therefore miss out on this price peak.

There was a similar surge in price in European markets, with wheat offered through the French futures system having gained €23.50 per tonne to end up at €232.50 per tonne by mid-afternoon.

The Russian export ban follows the worst heatwave in that country for a long number of years. This effectively decimated the grain crop. The ban is reported to last at least until December when a further decision will be made.

Meanwhile, in another trigger to the bullish market, the Canadian Wheat Board put their estimate for this year's crop at 18.45 million tonnes, the lowest figure since 2002 and well behind last year's production of 26.5m tonnes.

The government of Hungary announced that this year's wheat crop is seen at 3.5m tonnes, with 92 per cent of the harvest complete so far. The forecast is 20 per cent down on last year's production figure.

Yesterday's surge in price comes despite relatively high global stocks with experts considering that the global market seemed well protected from a shortfall in production as stocks amounted to around 200m tonnes, some 30 per cent of annual demand.

In fact, the European Union this week issued estimates showing soft wheat yields would be slightly above the five-year average, but within that the two big producers France and Germany would show a decrease.

According to the Home Grown Cereal Authority this is the first wheat supply and demand deficit the world has seen since 2007-08 and the market is nervously reacting to this changed situation of how much stock will be needed to balance the supply and demand and how easily it can access stocks. Away from North America and Europe, wheat stocks in regions like the FSU and China are controlled by politics rather than the market so that these countries can control domestic values. This creates more uncertainty for the international market as these are not readily available stocks.

The HGCA was yesterday taking a cautious stance with a lot of harvesting still to take place throughout the world. It did however point out that relative to maize, wheat has become expensive which may be detrimental to global feed wheat demand.