August 6, 2010

EU wheat prices skyrocket to highest level

Wheat prices in Europe have rocketed over the past month in what has been their steepest one month climb for three decades.

European wheat prices jumped 8% early this week to EUR211 a tonne, their highest level in two years, and a rise of 50% since last June.

The jump, which has been largely down to severe drought conditions in Russia, one of the world's leading exporters, has led to an increase in the cost of animal feed.

Ukraine has limited the export of wheat, feeling insecure about the availability for its own consumption. First a drought minimised the harvest and now rain deteriorates the quality of the remaining grains. Analysts expect that Russia eventually will limit wheat exports as well.

The scorching temperatures and dry skies threatening Russia's wheat harvests have also been beating down on Western Europe, which is forecasting lower output of wheat crops.

Russia's Agriculture Ministry on Tuesday (Aug 3) cut its forecast for the country's 2010 grain output to between 70 million tonnes and 75 million tonnes, down from earlier estimates of as much as 90 million tonnes.

Weather forecasts do not see any imminent relief from record Russian temperatures of up to 40 degrees Celsius. Western Europeans also expect their own markedly dry summer will have a negative effect on the production of grain this year.

Economists forecast a boost in seasonal food prices, with the German government reporting a 12-15% rise in July.