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 Hype Driving Prices Up - Is it Real?

The focus of the media on the Russian drought, and to a much lesser extent, one in Ukraine, and an abundance of rain in Canada, has created a narrative for wheat that can no longer be substantiated, as traders and speculators move in on the news to make some quick money.

As some wheat farmers have said from past experiences, this is nothing new, and the driving of prices through the media reporting on weather has caused huge price fluctuations in the past, and will continue to do so in the future.

That does have them concerned as to what the wheat market really is, and makes it extremely hard to project how many acres they should plant for the spring harvest.

It seems obvious, as what is happening this summer is unprecedented as far as Russia goes, and is very unlikely to occur next year.

There are always pockets of weather that damage wheat and other crops around the world, and the abundance of plantings have easily made up for that, as many countries have increased the planting of grains in order to protect themselves domestically.

Farmers selling during this current run-up in wheat prices are profiting handsomely, but that has nothing to do with planting for next year, which historically after these types of situations, usually create far too much supply and prices come crashing down, after farmers optimistically make decisions on what is happening today, and then pay too much for the following year's inputs.

In other words, they usually break even if they're lucky, and in many cases, experience losses.

Is wheat experiencing a shortage of supply? For those countries counting on Russian wheat that's the case, but taking into account global supply, it's highly unlikely there's a shortage, and places like Egypt are simply buying wheat from other countries, including the United States.

Russia, Ukraine Concerns Driving Wheat Prices Up Again

While the effects of the drought in Russia with its resultant suspension of exports, and the Ukraine wheat crop hit by drought, are largely unknown for the supply of wheat, that hasn't kept speculators from bidding up wheat prices, as they play on the uncertainty and fears of the worst case scenario of not having enough wheat supply this year, a highly unlikely possibility.

The Ukraine has nodded toward possibly withholding exports as well, helping to fuel more fear into the wheat market. If they do, that would happen from September to December. They should make a decision by August 25.

Another factor is the opposite in Canada, where heavy rains could limit the harvest.

None of this is anything new as far as weather goes, and hyping up the potential consequences weather can have on wheat prices is almost a sport in itself every summer and fall season.

Barclays (NYSE:BCS) analysts said in a research note, "We expect a trend of shifting import demand to U.S. wheat exports in the absence of Black Sea exports."

That remains to be seen, as they're basing that assertion on only one shipment of American wheat to Egypt. But it is a probability.

Wheat prices could soar much higher even if Russia isn't able to plant its winter wheat, as it would extend the shortage through next year, although other countries could respond by increasing the amount of acreage planted to compete for the business.

This is an unlikely scenario if the weather forecasts are accurate, as more than an inch of rain is predicted for the weekend, which would dramatically change the Russian wheat planting picture and allow them to successfully plant the grain.

The December wheat contract closed at $6.8875 a bushel Wednesday, the first upward move in three days.

Russia May Resume Wheat Exports in October

Deputy Prime Minister Viktor Zubkov, the top agriculture official in Russia, said Russia could resume exporting wheat in October.

Before a final decision is made, Zubkov said they'll look at the final figures concerning the wheat harvest.

Countries like Israel, Turkey and Egypt are major importers of Russian wheat, and have been in close contact with Zubkov concerning whether they'll be exporting wheat, in order to develop alternative sources if Russia continues the wheat export ban.

Even with ample global wheat supplies, the price of wheat shot up after the Russian announcement they were suspending exports. That is based on emotion rather on the reality there could be a wheat shortage, which there isn't.

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.

Wheat Futures Up on Supply Uncertainty

The recent up and down movement of grains continues, and that includes wheat futures, which were back up again today on concerns over whether wheat inventories will be able to meet demand.

Dry weather in the European Union, Russia and Kazakhstan has generated the most concern, although Russia sold Egypt wheat recently, causing some to think the U.S. isn't pricing wheat correctly, and is attempting to charge too much, even with the bad weather conditions.

Countering some of this is the good weather in the Midwest of the United States, which has become cooler and wetter, increasing the odds of a much better crop than if dry, hot conditions had continued.

All of this is speculation, and even if things are as bad as they are being passed off as, a growing number of countries have increased wheat production over the last several years, and it remains to be seen if there really is a supply problem, or the industry is creating that narrative in order to jack up prices.

After three straight days of falling prices, wheat rebounded to $5.8825 a bushel on the Chicago Board of Trade, gaining 11.25 cents, or 1.9 percent.

Wheat futures for September delivery on the Kansas City Board of Trade increased 12 cents to $6.015 a bushel, or 2 percent.