August 6, 2010

CBOT wheat hits record high on Russia's grain export ban

Benchmark wheat futures rushed to a 23-month high on Thursday (Aug 5) after Prime Minister Vladimir Putin of Russia announced a temporary ban on the export of grain and related farm products.

With Russia at the mercy of its worst drought in over a century, Putin also pledged RUB10 billion (US$335 million) in subsidies and another RUB25 billion (US$839 million) in loans to the agricultural sector, adding that grain from the government intervention fund will be distributed to regions.

A spokesman for Putin said the ban would come into force on August 15, fanning benchmark wheat prices in the US which have risen almost 70% since late June.

Wheat futures on the Chicago Board of Trade sprinted to be limit up on Thursday (Aug 5) at a 23-month high of US$7.85 -3/4 a bushel. This is still a long way short of the US$13.34- 1/2 a bushel hit during the food shortage in 2007 and 2008.

The rapidly deteriorating crop outlook in the Black Sea region, worries about plantings for next year's crop and concern about the impact of Russia banning exports has fuelled the searing rally in global wheat markets.

Last year, Russia exported 18.3 million tonnes of wheat, a total only exceeded by the US and the EU, according to International Grains Council figures.

Fears about a repeat of the food crisis of 2007 and 2008 and inflation have been a driver in the wheat rally, but the UN Food and Agriculture Organisation said on Wednesday (Aug 4) that such concerns were not justified.

The agency said world inventories, especially those held by major exporters, were enough to cover expected production shortfalls after two consecutive years of record crops.