Russia Bans Wheat Exports, Sending Prices Soaring

August 6, 2010 Bookmark and Share

Wheat prices soaring on news of production problems in Russia got an unusual boost this week when the country announced a ban on grain exports until at least December.

The country has been facing a severe drought and wildfires that have destroyed at least 20 percent of the Russian wheat crop. Still, the country has stocks and was until recently planning to draw on them to complete export orders.

The ban includes wheat and other grains as well as flour and goes into effect on Aug. 15, regardless of existing sales contracts, though the situation is very fluid and some contracts could be fulfilled.

Wheat buyers from around the world planning to source from Russia are expected to look elsewhere following the announcement on Thursday by Russian Prime Minister Vladimir Putin. This could affect U.S. wheat exports, which have been inching higher anyway; in July, the International Grain Council raised its forecast for U.S. wheat exports from 24.3 MMT to 29.2 MMT, which would be slightly above average.

In the U.S., futures prices for wheat reacted to the tightening supply by going up near the daily limit on Thursday, then falling by the limit on Friday.

At least temporarily, new export demand could mean Russia’s move on the global wheat market helps farmers in hard red winter wheat areas who have been facing cash prices well below the cost of production.

U.S. Wheat Associates, a sister association of NAWG’s and the industry’s export development organization working in 90 countries, assured its contacts that the U.S. is open for business and will always have wheat available for buyers regardless of nationality.

“In the genuinely open market we have in the U.S. today there is always wheat available at some price, both to domestic and international buyers,” USW President Alan Tracy said in the organization’s biweekly newsletter. “Supplies can be plentiful or tight, but the system finds a price that rationalizes the supply and demand balance. As we have said many times before, the U.S. wheat store is always open.”

The price spike has created some concerns about increasing food prices, though it is widely acknowledged that the world has sufficient existing wheat stocks to fulfill demand. Wheat commodity prices have nearly doubled since harvest lows in June, but it is believed many large buyers in the U.S. have already arranged to have supplies on hand, and wheat as a base ingredient makes up a very small percentage of the cost of any food product.

Russia is significant wheat exporter, typically the third or fourth largest in the world after the U.S., the European Union and Canada. The U.S. is the world’s largest wheat exporter, sending about half of each annual crop overseas.

For more information about buying or selling U.S. wheat, please visit http://www.wheatworld.org/buying-and-selling-wheat/.