U.S. wheat prices hit a seven-month high, a move that many analysts believe is a response to the Russian government's interventions in the commodity's markets. The current economic turmoil in Russia appears to be a key factor in the recent developments in the U.S. and global wheat markets.
Plummeting ruble having an impact on Russian grain markets
According to Bloomberg, the Russian government is slowing wheat exports amid the recent freefall of the ruble. The news source noted that the currency's decline has raised the prices that consumers must pay for bread by about 10 percent.
"The Russian government is slowing wheat exports amid the recent freefall of the ruble."
The Russian government is trying to find ways to prop its currency up after its value declined by 45 percent over the course of this year. Analysts noted that rock-bottom oil prices and international sanctions due to Russia's annexation of the Crimea region have battered the ruble and led to its precipitous drop.
Wheat exports to be restricted, not banned
Russia is curbing wheat exports by denying the commodity's buyers and sellers the certificates they need after sanitary inspections of their shipments. The National Association of Exporters of Agricultural Products, a Russian grain exporter group, will also inspect shipments through offshore companies as well, ensuring that any exports it deems contaminated are held back.
One analyst featured in Bloomberg suggested that the country is likely avoiding an outright ban on wheat exports due to fears that a total embargo would push prices up even further. These fears are likely based on the results 2010 export ban which saw Russia's wheat prices more than double.
"They want to do it by different means," Vladimir Petrichenko, director general of market researcher ProZerno, said yesterday in a phone interview with Bloomberg. "An embargo or export duties would obviously be too painful."
A report from the Wall Street Journal explained that Russia's wheat exports surged amid the ruble's drop, as foreign buyers moved to take advantage of cheaper grain. This had led the Russian government to stop exports to nearly every country, with Egypt, Turkey, Armenia and India being the only exceptions.
"It's definitely the talk around the market in Russia which is driving the prices," Stefan Vogel, head of agricultural commodity markets research at Rabobank International, said by phone from London in an interview with Bloomberg. "There's still a lot of uncertainty about how and if Russia will restrict exports"
U.S. prices rise may be due to Russia's actions
Another report from Bloomberg showed that wheat for March delivery climbed 2.5 percent to $6.65 per bushel by 5:45 a.m. on the Chicago Board of Trade, after hitting $6.77 a bushel earlier in the morning, marking the highest price since May 20. This week alone, wheat prices in Chicago have climbed 9.5 percent.
"The most dramatic story in the agriculture markets is the rally in wheat prices owing to the Russian economic situation," Christopher Narayanan, the head of agricultural research at Societe Generale SA in New York, said in an e-mailed note to Bloomberg yesterday. "News of export licenses being denied and expectations of increases to the government purchase price to curb exports and build up domestic grain inventories in the face of rampant food inflation have helped this rally."
As the Wall Street Journal explained, the rally in U.S. wheat prices could make the more expensive American crops unable to compete with other producers.
"I think we are in the process of pricing ourselves out of the world market," said Joe Vaclavik, president of Chicago brokerage Standard Grain Inc, to the Journal.
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