WINNIPEG Manitoba (Reuters) – Chicago wheat markets jumped 8 percent to near two-year highs on Thursday, twice triggering trading curbs to restore order before easing back after Russia said it would temporarily halt grain exports.
Russia’s worst drought on record has devastated crops in parts of the country and sent international grain prices soaring as markets placed bets that without shipments from one of the world’s leading exporters, global supplies would be restricted.
Wheat has risen seven of the past eight days at the Chicago Board of Trade and buying by funds and traders spilled across the grain markets. Corn and soybeans were 2 and 0.5 percent higher, respectively.
Prime Minister Vladimir Putin signed an order banning grain and flour exports from August 15 to December 31, with a spokesman saying this would apply to contracts that had been already signed.
The news confirmed an earlier report from Interfax that kicked off the buying.
“Putin’s announcement has everyone in a panic. It’s money chasing money, and who knows how high we could go,” said Paul Haugens, vice-president for Newedge USA.
On pace for its biggest daily percentage gain in three weeks on the Chicago Board of Trade, September wheat repeatedly tested its 60-cent limit gain at $7.85-3/4, the highest front month price since August 2008. The benchmark price has gained 82 percent since June 9.
It pulled back to $7.83-3/4 as of 12:07 p.m. CDT (11:07 a.m. EDT). Synthetically via options, wheat opened at $8.25 before profit taking by locals curbed gains, traders said.
“This is very much the old axiom ‘buy the rumor sell the fact,’ because we’ve been talking this exact situation for days and weeks and we had the fact announced that Russia is going to cancel exports,” said Don Roose, analyst with U.S. Commodities. “Now do we carry on, or is that the beginning of the end?”
Kazakhstan, another key Black Sea wheat grower that is expecting a 35 percent drop in the grain harvest, said on Thursday it will consider a request by Russia to curb exports at a meeting later this month.
Such grain trade barriers will distort global wheat markets, global grain-handling giant Cargill Ltd CARGIL.UL said.
The International Grains Council said last week it expects global wheat production of 651 million tonnes, well below the prior season but still the third-biggest crop on record. It projected Russian production at 50 million tonnes, or nearly 8 percent of the world wheat harvest.
Benchmark November milling wheat futures on Euronext extended a string of contract highs, before falling back to 223.25 euros.
The run up has not yet brought prices close to the highs of the 2008 wheat rally, when nearby Chicago prices spiked to $13.34-1/2 per bushel and fears of a global food crisis were rampant. Some analysts have said wheat’s current rally is overdone with global supplies ample after two years of record crops.
“I wouldn’t be surprised if they tack on another 60-70 cents or more in the next session,” said Joe Bedore, CBOT floor manager for trading house FC Stone in Chicago. “The export ban is now official. And that’s the ultimate bullish fact here.”
Nearby wheat futures on the Kansas City Board of Trade and Minneapolis Grain Exchange also surged to their daily limits. Kansas wheat later resumed trading when prices backed down.
A Reuters poll on Thursday forecast a Russian wheat crop of 46.5 million tonnes this year, a fall of about one-quarter compared with 2009. Informa Economics pegged the crop at 49 million tonnes.
Without Russian wheat, the prospects of tighter world supplies offer opportunities to other major exporters including the United States and European Union.
“An export stop by Russia would mean the cards are reshuffled in the international wheat market,” one European trader said.
“It would open up huge new opportunities for west European and U.S. sales.”
Markets were also nervous that the continuation of Russia’s drought conditions would disrupt the forthcoming sowing season for winter crops, a point made on Wednesday by both the UN’s Food and Agriculture Organization and the head of the Institute for Agricultural Market Studies (IKAR) analysts.
The FAO cut 25 million tonnes from its last 2010 global wheat estimate, which was released in June before the drought set in.
Wheat’s rise supports less-costly corn because of the possibilities of higher corn demand from global buyers of livestock feed. Wheat’s attractive prices could also convince U.S. farmers to plant more acres to wheat than corn next year than they otherwise would have, Roose said.
By Rod Nickel
WINNIPEG | Thu Aug 5, 2010 1:59pm EDT