FEED Business Worldwide - June 2012
Six weeks of uncertainty: Will Russian wheat upend the world grain market?
by Eric J. BROOKS
After months of poor performance, mid May saw feed grain prices suddenly firm up. Two years ago, a sinking corn market was swiftly kicked upwards by a devastated Russian wheat crop. Can the same thing happen again?
Whether in world wars or CBOT price futures, Russia has a long history of upsetting everyone's best laid plans. In 2010, when institutions such as Goldman Sachs were predicting average corn prices staying below US$4.50/bushel right through to 2014, a few months of Russian drought quickly made countless such predictions look ridiculous. In 2010, Russia's year-on-year harvest crashed from 56 million tonnes to 41 million tonnes. Exports nosedived from 18.5 million tonnes to 4 million tonnes. Within a few months, wheat became too expensive to substitute in place of corn.
How Russian weather wags feed markets
This in turn pulled up CBOT corn, which was trading below US$3.50/bushel at the time. With corn itself falling victim to disappointing harvests, Chinese import demand and rising ethanol production, the disappearance of Russian wheat from the world market did much to boost corn above US$7/bushel.
The opposite story occurred in the last growing season: Bumper Russian, Ukrainian and Australian harvests restocked world wheat inventories and pushed wheat's price below that of corn. That kick-started a world-wide trend towards using feed wheat in place of corn, helping soften the latter's price over the past year.
But this year's Russian whether is already giving market observers bad memories: A notoriously cold weather country, Russian grain growing temperatures have been 5C to 8C higher than normal, hitting 29C in the middle of Spring. Just like in 2010, a massive ridge of high pressure has parked itself in central Europe, blocking rainfall-bearing moisture from central and southern Russia. If this stubborn jet stream anomaly does not dissipate soon, there will be trouble.
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