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Sunday, 22 August 2010 14:22

Russia's Wheat Export Ban Signals Rise in Prices

DAR ES SALAAM, Tanzania, August 22, 2010 (The Citizen) - Wheat importing countries such as Tanzania should brace for expensive supplies from the international market following Russia's ban on exports due to a devastating drought and heat waves.


Russia is the world's third largest exporter of the commodity. The move could result in a rally in local shelve prices of wheat related foods such as bread, triggering inflation. Russian Prime Minister Vladimir Putin announced a temporary ban on grain exports, sending wheat prices to new highs.


The rally of white prices in the international market looks set to offer local farmers protection from a possible swamping of the local market with cheap imports. The decision by Finance and Economic Affairs minister Mr Mustafa Mkulo to lower import duty on wheat from 35 per cent to 10 per cent upset local producers fearing it would expose them to cheap imports as they face a bumper harvest arising from heavy rains since late last year.


"I think it is advisable to introduce a temporary ban on the export of grain and other agriculture products made from grain," Mr Putin was quoted as saying last week. Mr Putin's spokesman, Mr Dmitry Peskov, said the ban will become effective from August 15 and will apply to contracts already signed.


"This ban will be temporary in character. We will talk later about how we will behave after December," Mr Putin said, indicating that the ban will be in force at least until December. Russia and Canada are among the world's top 10 wheat producers, contributing 7.3 per cent and 4.1 per cent of the global supply respectively.


Supply bottlenecks expected to arise from the ban mean imported wheat will cost more for deficit nations such as Tanzania. It also offers local farmers an opportunity to sell at competitive prices. By Friday, the drastic measure by Russia was already causing ripples in international markets, triggering trade and inflation fears after several buyers were forced to turn to the US market leading to the futures price of the commodity soaring to a 23-month high.


The world's largest wheat importer, Egypt, raised the alarm saying they would seek an additional 60,000 tonnes per month to make up for any shortfall. Egypt has signed contracts to buy 540,000 tonnes of wheat from Russia for delivery between August 1 and September 10. "If a decision is issued and it is an official decision the Russian government has to... allow (buyers) to implement the contracts that have been completed, then ban any other contracts after August 15," Mr Nomani Nomani, chairman of Egypt's General Authority for Supply Commodities (GASC), said.


The US wheat futures jumped more than six per cent on Friday in a buying frenzy sparked by Russia's move. "There are two things driving the market, fear and fund buying," Mr Jonathan Barratt, managing director at Commodity Broking Services in Sydney said. "There is no panic because world stocks are high. If you are a buyer you are not going to chase these prices, you are only going to buy to fill spot needs."


Cut its global forecast

But even as global markets reacted to Russia's ban on exports, the Food and Agriculture Organisation (FAO) down-played prospects of higher prices. The agency, however, announced that it had cut its global wheat forecast for 2010 from 676 million tonnes to 651 million tonnes, citing unfavourable weather.


"But despite production problems in some leading exporting countries, the world wheat market remains far more balanced than at the time of the world food crisis in 2007/08 and fears of a new global food crisis are not justified at this point," FAO said. The UN agency said a devastating drought, affecting crops in Russia, coupled with anticipated lower outputs in Kazakhstan and Ukraine raise strong fears about the availability of world wheat supply in the 2010/11 marketing season.


In its July estimate, the US Department of Agriculture put global wheat stocks at 187.04 million tonnes in the year 2010/11, down from 193 million in 2009/10. "The turmoil in global wheat markets, which has intensified in recent weeks, is evidence of the growing dependence on the Black Sea region, an area renowned for erratic yields, as a major supplier of wheat to world markets.


In addition, an expected production decline in Canada, another major producer and exporter, has reinforced market worries," FAO said.


Production shortfall

International wheat prices have risen by over 50 per cent since June, prompting concerns about a repeat of the 2007/08 crisis. The agency, however, pointed out that after two consecutive years of record harvests world inventories have been replenished sufficiently to cover the current anticipated production shortfall.

"Even more importantly, stocks held by the traditional wheat exporters, the main buffer against unexpected events, remain ample," FAO said.



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