FS: Russia grain export ban ignites fears of food shortages
In 2008 when commodity prices soared, many blamed biofuels policy. However as a World Bank report corrected recently, weather was one of the major factors in the surge. And it wasn't weather in major corn growing areas, but rather in wheat, that brought food riots around the world.
The scenario is playing itself out again as drought concerns in Russia and other former Soviet Union countries such as Ukraine and Kazakhstan are experiencing severe drought conditions. The countries are seeing major delays in winter wheat seeding due to dry soils.
In 2008, food riots started because many countries around the world started hoarding their tight supplies of food, and in turn caused panic in countries around the world that don't have the ability to produce for themselves.
Russia's Prime Minister Vladimir Putin agreed to an export ban on wheat, barley, rye and maize, as well as flour from wheat and rye. The ban stretches from August 15 to December 31, but the door was left open for the ban to be lifted earlier.
Russia requested that the ban also pertain to Belarus and Kazakhstan, but Kazakhstan said that it won't consider the issue until the Economy Ministry meets on August 17 and 18. The Russian ban allows exporters to break previous contracts that they were losing money on. More importantly, it allows Russia political room for controlling food inflation fears, explained Arlan Suderman, market analyst for Farm Futures.
The countries have become very important in world wheat production and trade. Wheat is a major feedgrain around the world, which also has a major impact on corn prices.
The impact of unfavorable weather events on crops in recent weeks has led Food and Agricultural Organization of the United Nations (FAO) to cut its global wheat production forecast for 2010 to 651 million tonnes, from 676 million tonnes reported in June.
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 world agency added after two consecutive years of record crops, 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.
