Russian Wheat Crisis of 2010

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In the summer of 2010, the global markets experienced a wheat crisis due to severe weather conditions in Russia. The world's third largest producers of wheat saw a severe drought and wildfires that destroyed one-fifth of its wheat production. The drought, which was said to be the worst in 130 years, led to a 30 percent decrease in the wheat Russia could export. The weather conditions also affected harvests in neighboring wheat producing countries such as; Ukraine and Kazakhstan.[1]

The Food and Agriculture Organization of the United Nations re-evaluated the 2010 global wheat production forecast at 651 million tons from 676 million tons but expected markets were better off than the 2008 crisis.[2] In 2008, the global markets experienced a similar crisis when wheat prices increased to $13 a bushel and spawned food riots. The Russian wheat crisis of 2008 taught many countries to keep higher inventories and experts believe the 2010 situation is much more stable because of larger stockpiles.[3]

History of Russia's Wheat Production

Russia is the third largest wheat producing country behind the United States and the European Union. Russian state farms were marginalized after the fall of the Soviet Union and most of the grain production comes from big, multi-national companies. Stagnant for awhile, Russian agriculture saw an upswing due to Russian firms and foreign investments funds starting to buy up land and upgrade production.[4]

In 2009, Russia harvested 97 million tons of wheat and the year before, they harvested 108.2 million tons. In 2010, Russia's wheat harvest will be down to 60 million tons.[5]

The Russian government put a temporary export ban on grains and other agricultural products until the end of the year to avoid spikes in domestic food prices. They will re-examine the situation on October 1, 2010.[6]

Market Impact

Due to conditions in Russia, farmers in the United States and the European Union will benefit from the spike in wheat prices. However, prices for consumers will also rise.

In July 2010, wheat prices surged to 42 percent which was the biggest monthly gain in a half a century. At the Chicago Board of Trade, wheat was trading at $7 a bushel for the first time since September of 2008. At the Kansas City Board of Trade, the prices were at a 13-month high, hitting $6.85 a bushel for Hard red winter wheat.

The FT reported that food executive are also cautious about surging prices for feeding and malting barley, which could impact the retail cost of products from poultry to beer.[7]


References

  1. Russian wheat crop in dire straits, while U.S. farmers expect bumper harvests. Kansas City.com.
  2. FAO cuts wheat production forecast but considers supplies adequate. FAO website.
  3. Russia Wheat Export Ban Pushes Prices Near 2-Year High. PBS.
  4. Bad Russian Wheat Farmers Boosts US Farmers. Las Vegas Sun.
  5. Russian Wheat Harvest To Dip By A Third. Boston.com.
  6. Russia Not to Lift Grain Ban. AgriMarket.
  7. Rise in Wheat Prices Fastest Since 1973. FT.