Higher Wheat Prices on Russian Ban, Food Riots Commence

Russia surprised the world when it announced it was going to extend the ban on exporting wheat, pushing wheat prices up, and resulting in riots in Mozambique because of higher bread prices.

Wheat won't be exported from Russia until the latter part of 2011, assuming the wheat harvest goes okay.

Wheat futures for December increased to $7.35 a bushel on the Chicago Board of Trade, a gain of 21 cents. In just three days wheat has risen 7 percent. which follows on the footsteps of a 38 percent increase in July and a 3.7 percent increase in August.

This all seems to be driven by emotion, as the actual situation isn't that dire, and there are plentiful wheat supplies around the world.

Even the goofy call by the United Nations' Food and Agriculture Organization to call a meeting over this is ridiculous. There's nothing to be concerned with, other then nations ordering supplies from alternative sources. How hard can that be?

This is more of a manufactured crisis with reporting on only one side of the issue, leaving out the huge supply of wheat there is available around the world.

Few in the industry are offering balance because they like the high prices and profits they're getting.

Wheat Fears Wane as Prices Plunge on Ample Global Supply

Wheat prices have soared recently on the hyped-up drought story in Russia, which while real, when compared with the global wheat market, wasn't as big a story as was led to believe, or as big a risk.

As the media catch up with the reality of the global wheat market, and quit their narrow focus on Russia, the supply of wheat is much stronger than when the price went up to over $13 a bushel in the early part of 2008, which ended with food riots around the world.

That is less likely to happen this time around, as stockpiles today are roughly 50 percent higher than they were during the early 2008 period. They are also approximately 30 percent of the average annual global consumption, offering a wider range of protection than in the past.

Of course these times of fear and emotion-driven data are perfect for those looking to move in and out of the market and make quick and predictable profits.

But I think it's going to settle down now that emotions are settling down and the overall supply picture is being looked at.

Many countries have increased their wheat acreage, not only in response to the 2008 crisis, but before that as well, understanding the potential risks associated with weather and grains.

This doesn't take away from the possibility of food inflation related to the increase in wheat, as it still must pass through system, and those costs will be locked in for the most part, and that will cause prices of bakery goods and cereal to rise at some point.

That isn't to say other events couldn't arise that could cause wheat prices to go up, but as it stands today, global supplies are ample, and we'll see wheat prices continue to fall, unless a different set of factors become part of the equation.

Is Wheat Supply Really Under Pressure?

With the focus on the drought in Russia, and losses of production is some parts of Europe, the impression we're facing a severe shortage of wheat has been put forth by the press, but the reality is there is so much wheat out there, the losses from Russia and Europe are largely irrelevant.

Even with wheat prices continuing to find support and move upward, the reality of the bountiful wheat harvest, which will be realized or focused on in August, will again put downward pressure on wheat prices going forward.

In spite of the surge in wheat prices the last month, expectations are prices will probably end the year lower by about 2 percent over last year.

It's even fortunate the Russian drought has caught the eye of the agriculture press, or wheat prices probably would have been much lower than that.

South America and Australia are particularly strong this year, and wheat exporters will have pressure on margins again as wheat prices begin their inevitable downward march, as global inventories remain strong in spite of drought news coverage.