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Wheat prices increase despite sufficient global supply
Wednesday, 18 August, 2010, 08 : 00 AM [IST]

The global wheat prices have risen about 90% since June because of the Russian drought and other factors like floods during the planting season in parts of Canada.

Then on Aug. 5, Russian Prime Minister Vladimir V Putin announced the decision to halt all exports of wheat through the end of the year. This caused prices to hit their upper limits on all three of the exchanges where wheat futures are traded in the United States.

The International Food Policy Research Institute (IFPRI) reported that experts and grain unions expect Russia’s wheat exports to decrease 30–40% this year, relative to 2009. Since Russia exported 21 million tonnes of wheat last year, this decrease is equivalent to 6–8 million tonnes. While it would seem that such a reduction in Russian exports will create supply shortages in regions such as the Middle East and North Africa, which are the main buyers of Russian wheat, excess wheat supplies around the world should be able to easily fill the gap.

A recent USDA report estimates the global production of wheat for 2010–2011 to be 661 million tonnes — only 3% lower than production in 2009–2010. In addition to having sufficient wheat stocks, it is also believed that many large buyers have hedged against cost inflation — that is, they have already locked in their wheat purchases, many through the first quarter of 2011. It is the small food producers that may be left to pay higher prices because they tend to buy flour on the spot market.

The main cause for concern, according to Maximo Torero at the IFPRI, is that other countries might follow Russia’s lead and stop exporting, a domino reaction that could cause a sharper increase in prices.

Source: The New York Times
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