Image via WikipediaMy wife, who is supplementing the family's income by making 'kuih kukus' and fried 'mee yon', came one afternoon complaining about the hike in the price of flour. I asked her why. "It is because Russia banned the export of wheat and as a result, the price of wheat went up to 55%"
As I open my mail box later that night, I found out that there were vast destruction of farm land owing to the outbreak of fire in
Russia's worst drought in a century prompted one of the world's biggest wheat growers to ban grain exports for the first time in 11 years, sending already red-hot benchmark U.S. wheat prices to a fresh 23-month high.
Prime Minister Vladimir Putin on Thursday announced a temporary ban on grain exports to keep inflation in check, pledging billions of roubles to the farm sector. "I think it is advisable to introduce a temporary ban on the export from Russia of grain and other agriculture products made from grain," Putin told a government meeting.
Putin signed an order banning exports of wheat, barley, rye and maize, as well as wheat and rye flour from Aug. 15 to Dec. 31, the government press office said, adding it planned to ask for a similar ban from customs union partners Belarus and Kazakhstan.
Trading in September wheat WU0 on the Chicago Board of Trade went into overdrive, rising by a limit-up 60 cents to $7.85-3/4 by the close of the electronic session, a high for the contract and a 23-month peak for front-month prices.
Benchmark wheat prices in Chicago and Paris have now added 69 percent and 58 percent respectively since the start of July.
With Russia at the mercy of its worst drought since records began 130 years ago Putin pledged 10 billion roubles ($335 million) in subsidies and another 25 billion roubles in loans to the agricultural sector, adding that grain from the government intervention fund will be distributed to regions.
Last year, buoyed up by bumper harvests in 2008 and 2009, Russia exported 18.3 million tonnes of wheat, a total only exceeded by the United States and the European Union, according to International Grains Council figures.
But Russia's ambitions to take more market share have taken a dent from the drought.
"An export stop by Russia means the cards are reshuffled in the international wheat market. It would open up huge new opportunities for west European and U.S. sales. The implications would be huge," a Europe-based trader said. ...
Fear about a repeat of the 2007/08 food crisis when wheat prices topped $13 a bushel has been a major driver in the wheat rally, but the United Nations Food and Agriculture Organisation said on Wednesday that such concerns were not justified.
The FAO said world stocks, especially those held by major exporters, were enough to cover expected production shortfalls after two consecutive years of record crops. "External factors, including the macroeconomic environment and developments in other food markets, which were major drivers behind the surge in international prices in 2007/08, are not posing a threat so far," the FAO said.
Some market players agreed, taking on board the role of speculators in the current spike. "A (Chicago) market that gains $1 in four days is not a fundamental one," a trader said. "The pullback if it happens will be all the more severe.
As I turned to the last book in my bible, the words of the Lord came refreshingly clear.
And I heard a voice in the midst of the four beasts say, A measure of wheat for a penny, and three measures of barley for a penny; and see thou hurt not the oil and the wine. (Rev 6:6)
What’s happening to agricultural commodities is hardly a crisis but rather a continuing recalibration between supply and demand. We’re merely going through a transition period in our food production and distribution systems. More than a billion people will join the middle class by 2030, and many of them won’t live near arable lands. This will put a strain on grain supplies and will expose food systems to significant systemic pressures. No one knows how things will evolve, but we’re definitely seeing the beginning of a new world order in food.
End of Part 1
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