Agro Perspectiva

Surge in wheat prices continues in August

05.08.2010 11:55 "Agro Perspectiva" (Kyiv) — Wheat prices opened August with another big jump, hitting a 2-year high Monday as worsening weather conditions ravaged Russia’s grain crops. Wheat prices soared 42 percent in July, the biggest monthly gain in at least 51 years, as a severe Russian drought destroyed one-fifth of Russia’s wheat crop. Fires are now raging in the fields of the world’s No. 3 wheat exporter, hurting more crops and increasing expectations that Russia will have to curb or even stop its exports. Estimates from Russian grain growers’ unions and economists range from a 30 percent to 44 percent drop in exports this year from 2009. Canada, another major exporter of wheat, expects the lowest wheat yields since 2002 because of crops that were destroyed by heavy rains or left unplanted. That is great news for American farmers, who expect a strong yield from U.S. wheat crops. They will likely sell more of their wheat for higher prices to meet the shortfall from abroad. «This is a rare opportunity when they can enjoy rising prices for a good crop,» said Dan Manternach, wheat analyst with agricultural consultancy Doane Advisory Services. «I expect prices to continue rising until the extent of drought losses in (Russia’s) Black Sea region are known. This is classic panic buying for fear of the unknown.» The rising cost of wheat also makes it likelier that U.S. shoppers will pay more for bread, crackers and pasta at the grocery store come fall, however. That could change. If the huge rally in market prices continues in August, U.S. shoppers could pay 5 to 10 percent more for products made of wheat at the grocery store starting in fall, said Ephraim Leibtag, an economist with the USDA’s economic research service. For bread alone, wheat costs make up about 30 percent of its retail price at the grocery store, said Jonathan Feeney, food and beverage analyst for Janney Capital Markets. If retailers can pass on higher costs to consumers, grocery chains such as Kroger Co. and cereal makers like Kellogg Co. could also benefit, Feeney said. Expectations for an increasingly smaller world stockpiles of wheat helped push prices for September delivery up 31.75 cents, or 4.8 percent, to settle at $6.9325 Monday. It’s the highest wheat close since September 2008. Prices earlier Monday touched above $7 a bushel for the first time since September 2008, which was the tail end of a record-busting run-up in commodity prices that began in spring of 2007. Wheat prices topped out at an all-time high above $13 a bushel in February 2008. Other grains prices were mixed Monday. September corn contracts slipped 2.25 cents to settle at $3.905 a bushel, while September oats jumped 5.5 cents to $2.765 a bushel and November soybeans added 5 cents to $10.10 a bushel. Metals and energy prices also mostly rose Monday after a better-than-expected report on manufacturing. More production will likely require the use of more commodities in factories and transportation. October platinum rose $25.40 to settle at $1,602.20 an ounce, September palladium added $15.85 to $515.85, copper gained 7.8 cents to $3.3895 a pound and silver settled up 41.6 cents at $18.419 an ounce. Gold for December delivery, which is considered a safe haven investment and is more popular when investors become nervous about the strength of the recovery, inched up $1.50 to settle at $1,185.40 an ounce. Benchmark crude for September delivery jumped $2.39, or 3 percent, to settle at $81.34 a barrel on the New York Mercantile Exchange. In other Nymex contracts, natural gas for September delivery slipped 22.2 cents to settle at $4.791 per 1,000 cubic feet. September heating oil rose 6.57 cents to settle at $2.1538 a gallon.