Russia will suspend grain exports amid a devastating drought, sending wheat prices soaring to a two-year high and sparking fears of another bout of serious inflation in global food prices.
The skyrocketing price of wheat has generated concerns about a repeat of the global food crisis of 2007-08, when flour costs surged, pushing the price of a loaf of bread in Canada up roughly 20 per cent.
Premier Foods PLC warned Thursday that higher bread prices are in store for British consumers, but Canadian bakeries and pasta makers have yet to sound the alarm.
"The increase in wheat prices will probably translate into some increase in Canadian bread prices, but the magnitude this time around is hard to determine," David Boyes, a commodity risk manager at the Canadian Wheat Board, said.
A commodity rally beyond wheat has added to worries that the price of groceries could jump. Other food commodity prices have climbed this summer, including coffee, sugar, barley and pork bellies, which are used for making bacon. Commodity markets remain volatile, with sugar slipping Thursday, taking a breather from a four-month ascent.
Russian Prime Minister Vladimir Putin's announcement Thursday that grain shipments from the world's third-largest wheat exporter will be halted from Aug. 15 until the end of 2010 sent shock waves through commodity trading pits.
Wheat contracts surged to surpass $7.85 (U.S.) a bushel, an increase of 60 cents - the daily limit allowed by the Chicago Board of Trade. World wheat prices have surged more than 70 per cent since early June, bolstered by a wet spring that scaled back seeding in Western Canada, with prices further fuelled by a severe drought and wildfires that scorched crops in Russia this summer.
The Canadian Wheat Board, which markets wheat on behalf of Prairie farmers, said it will continue its export program to take advantage of escalating prices. Canada is the world's second-largest wheat exporter, trailing only the United States.
On Wednesday, the United Nations' Food and Agriculture Organization had played down fears about runaway food inflation, at least this year.
"The latest downgrading of world wheat production forecast for 2010 points to a tighter supply situation and increases the likelihood of higher wheat prices compared to the previous season. However, fears of a global food crisis are unwarranted at this stage," the UN food agency said.
"On the other hand, should the drought in the Russian Federation continue, it could pose problems for winter plantings in that country with potentially serious implications for world wheat supplies in 2011-12."
Even if the temporary ban is isolated to Russia, the fear of an expanded curb on exports will be enough to unnerve wheat markets through August and September, said Ron Bonnett, president of the Canadian Federation of Agriculture.
The question now is whether two other major Black Sea wheat producers facing lower harvests, Kazakhstan and Ukraine, will join Russia in slapping a ban on grain exports for the rest of the year to conserve grain for domestic consumption.
"Russia is a big player, and its announcement will contribute to the volatility in commodity markets and uncertainty in the agricultural community as to where prices will settle out," Mr. Bonnett said. "We'll have to see how other Black Sea countries respond."
Mr. Boyes of the Canadian Wheat Board said Russia presold some wheat in the export market, but certain contracts totalling more than three million tonnes now won't be filled until next year, meaning importers will have to find their short-term supplies elsewhere, including buying from Canada and the United States.
"By shutting off exports, Russia will be increasing the amount of wheat available inside the country. Russia is artificially increasing the amount of its domestic supply, and that is designed to lower prices for Russian consumers because the wheat is stuck in Russia," Mr. Boyes said.
Russia's ban also covers exports of rye, corn, barley, maslin and rye flour, according to the Prime-Tass news agency.