Russia's Wildfire Leads to Market Fluctuations
Russia's decision to halt wheat exports this year has resulted in sharp fluctuations in grain prices in agriculture commodities markets, stirring up fears that another food crisis may be looming.
Wildfires have destroyed a fifth of wheat crops in Russia, the world's thrid largest wheat exporter, and a record drought in over a century is still threatening the country's crop harvests.
The U.S. Department of Agriculture, in a report last week on the world's demand and supply situation, slashed its wheat export forecast for the current year for Russia from 15 million tons to 3 million tons.
Past lessons show that a volatile global supply can spark another round of price speculation, which will be fueled by fears that Ukraine and Kazakhstan will follow Russia's suit to ban export of their meager grain harvests.
WHEAT MARKET VOLATILE
The global wheat market has been volatile, with the prices for futures of September delivery shooting up 8.3 percent to a two-year high of 7.8575 U.S. dollars a bushel on Aug. 5, before falling back to slightly above 6.5 dollars this week on official reassurances about supply.
Analysts said the sharper-than-expected fall in Russia's wheat production has a major impact on the global commodities market.
"This is because not only Russia is one of the largest exporters of wheat, but also other countries may follow suit to protect their harvests," said Dong Shuangwei, an analyst at Capital Futures Co., Ltd.
Dong said he expects global food commodity prices to remain high in the near term but unlikely to reach the record level of 2008.
"Supply is not that short. Also absent are factors such as inflation expectations and the demand resulting from biofuel production as a result of surging oil prices," he said.
The U.S. Agriculture Department revised its U.S. production forecast upward by 49 million bushels (1.3 million tons), although global production was lowered by 15.3 million tons, mostly on reductions for the dry weather-affected former Soviet states and European countries. The report also raised its forecast for U.S. wheat exports by 20 percent to 32.7 million tons.
The ending stocks for the United States, the world's largest wheat exporter, was 952 million bushels (25.9 million tons), lower than the previous forecast but still the highest in a decade.
It adjusted its forecast for Russia's wheat production this year downward to 45 million tons from 53 million tons. The world's total wheat production was forecast to be 646 million tons.
AFRICA VULNERABLE TO FOOD CRISIS
There is no doubt that a shortage of food supply and price inflation worldwide would have dire consequences for the poorest as those countries, including some in Africa which are struggling to feed their populations, are particularly vulnerable.
The grain export ban imposed by Russia will have the biggest impact on its traditional importers like Egypt and the Middle East countries.
Egypt is the world's largest wheat importer, importing 5 million tons a year, and other Middle Eastern countries also rely on imports for most of their grain needs.
It is widely believed that there is no need to panic about food supply, but food security should remain a concern.
"A key lesson of 2008 is that volatile global financial markets can result in food commodities price speculation that has dire consequences for the world's poorest," Laurie Garrett, author of a recent report released by the U.S. think tank Council on Foreign Relations, says, citing World Bank estimates that 100 million people had been pushed into subsistence poverty by May 2008 due to food inflation in the first quarter of that year.
Speculation pushed wheat prices to record highs in 2008, and led to an export ban in Southeast Asia and even rice riots in some countries.
"If history is any guide, further episodes of strong price fluctuations cannot be ruled out, nor can future short-lived crises," the FAO and the Organization for Economic Cooperation and Development said in a report in June.
There are signs that the latest round of food grain inflation is feeding through to food prices in some African countries. The cost of a loaf of bread in Johannesburg jumped 20 percent in just a few days while food producers in the wealthy world locked down flour and wheat futures, Garrett says.
Even before the latest round of food commodity price surges came, millions of people in Chad, Sudan, Niger and Mauritania had already been experiencing a food security crisis, with many facing starvation, said non-governmental organizations Save the Children and Medecins Sans Frontiers.
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09.01.2013 2012 marked by multiple events in Kazakhstan