Wheat extends rally on Russian drought

08:43, August 06, 2010      

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Wheat extended a rally to the highest price in 23 months on heightened speculation that the worst drought in at least half a century in Russia will force the country to curb exports.

Russia may temporarily ban grain exports starting as early as next week, Interfax said, citing an unidentified government official. A spokesman for the Agriculture Ministry couldn't confirm or deny the report.

Grain Union President Arkady Zlochevksy said Russian officials were discussing export curbs. Wheat prices have climbed 17 percent this month, on top of a 38 percent surge last month.

There's "a little bit of panic", said Michael Pitts, director for commodity sales at National Australia Bank Ltd.

Wheat for December delivery, the contract with the largest open interest, advanced as much as 4.7 percent to $7.9125 a bushel in Chicago on Thursday, the highest price for a most-active contract since September 2008. It was at $7.88 a bushel at 11:51 am London time. Milling wheat futures for November delivery in Paris were 5.3 percent higher, and earlier on Thursday climbed to the highest since the contract started in March 2009.

A record heat wave in Russia is adding to crop damage in Kazakhstan, Ukraine and parts of the European Union, draining wheat stockpiles and encouraging consumers to seek alternatives such as rice. Wheat's climb to a record in 2008 spurred concern over a global food crisis and sparked riots from Haiti to Egypt.

"Wheat prices may continue rising" through this month, said Chris Yoo, manager of the global derivatives team at Samsung Futures Inc. "Consumers are likely to switch to rice."

Russia was the third-largest producer of wheat last year, after China and the EU, according to the US Department of Agriculture. The Perm region in western Russia declared a drought emergency on Thursday and said as much as 40 percent of its grain crop and 45 percent of its potatoes may be damaged.

"The impact of the drought on harvest and grain prices will be material, causing annual 2010 inflation to reach 7 to 7.5 percent versus our previous estimate of 6.3 percent," Natasha Zagvozdina and Ulyana Lenvalskaya, analysts at Renaissance Capital in Moscow, said in an e-mailed note.

Demand for supplies from Australia may gain, said Tom Puddy, wheat-marketing manager for Perth-based CBH's export division. "With the prices rallying so much now, a lot of the users are sort of in shock," Puddy said. Shares of Australian exporters jumped.

Food costs advanced to records in 2008, led by rice, as some exporters curbed shipments amid a shortage. United Nations Secretary-General Ban Ki-moon warned last year the food-price rises of 2008 will be repeated unless governments take action.

Source:China Daily


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