Wheat extended a rally to reach its highest price in almost two years on concern that other nations may follow Russia’s export ban and it may reach US$10 a bushel, a price not seen since the global food crisis in 2008.
Russian Prime Minister Vladimir Putin said Kazakhstan and Belarus should also suspend shipments as Russia’s ban was announced on Thursday from Aug. 15 to the end of the year.
Halting Russia’s wheat shipments would be “appropriate” to contain domestic prices that jumped 19 percent last week, Putin said.
PHOTO: AFP
The country shipped an estimated 17.5 million tonnes of wheat in the year to June 30, accounting for 14 percent of global trade, according to the US Department of Agriculture (USDA).
Putin told a government meeting in Moscow on Thursday that Russia has “sufficient reserves” of grain, “but we must prevent domestic prices from rising, preserve cattle herds and build up reserves.”
The ban will also apply to barley, rye, corn and flour.
Kazakhstan, Russia’s partner in a customs union, exported 7.5 million tonnes in the year ended June 30, while Belarus, another partner, shipped 400,000 tonnes, according to the USDA. Ukraine accounted for 9.2 million tonnes in the same year, it said.
“It’s got US$10 written all over it,” said Peter McGuire, managing director at CWA Global Markets Pty.
Wheat last traded at US$10 in March 2008 and a gain to that price would be a 23 percent advance from Thursday’s close.
Russia’s ban may benefit rival producers, including the US, the largest exporter, Australia and Argentina, according to Rabobank Group. Wheat prices have doubled in less than two months as drought slashed the harvest in Russia, the third-largest grower, and rains cut Canadian output.
“When Putin speaks, the world listens,” said McGuire, referring to the possibility other nations may also curb shipments.
The biggest gainers would be US farmers because they have the supply to meet demand in the global market, he said.
“They’ll all be driving Lamborghinis,” McGuire said.
The surge may herald a new food crisis as corn and other staples jump, warned a trade group from Indonesia, Asia’s top wheat buyer.
“There will be a domino reaction and we expect corn demand will rise, pushing prices higher,” Franciscus Welirang, chairman of the Flour Mills Association in Indonesia, said by phone. “It’s the end of cheap wheat.”
Wheat has rallied as a heatwave in Russia, dry weather in Kazakhstan, Ukraine and the EU, and flooding in Canada hurt crops. Russia’s drought is also threatening sowing plans for winter grain, the national weather center has said.
Wheat for December delivery rose as much as 6.5 percent to US$8.68 a bushel on the Chicago Board of Trade, taking gains for that contract to 25 percent this week.
The crop traded at US$8.5875 a bushel at 3:34pm in Singapore yesterday.
Wheat reached a record US$13.495 in February 2008, part of a surge in prices that sparked food riots from Haiti to Egypt. Still, concern that lower-than-expected wheat output may contribute to a food crisis is “unwarranted at this stage,” the UN’s Food and Agriculture Organization said on Wednesday.
Japan, Asia’s second-largest wheat buyer after Indonesia, may look for increased shipments from the US, said Charlie Utsunomiya, director at the Tokyo office of US Wheat Associates. Japan buys Russian wheat and barley for animal feed.
The Russian ban will “rattle the markets for the next several months” and boost demand for stockpiles from the US, Bob Young, chief economist at the American Farm Bureau Federation, said in Washington.
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