Wheat Advances as Russia Extends Export Ban, FAO Calls Emergency Meeting

Russia’s government has forecast that this year’s harvest may be slashed by as much as 38 percent as the worst drought in at least half a century parched crops. Photographer: Alexander Zemlianichenko Jr/Bloomberg

Wheat climbed after Russia, the third-largest grower last year, extended a ban on exports into next year after a drought destroyed crops, tightening global supplies. The United Nations’ Food and Agriculture Organization called a special meeting to address the global grains situation.

The December-delivery contract gained as much as 0.8 percent to $7.1925 a bushel in Chicago, after surging as much as 2 percent yesterday when Prime Minister Vladimir Putin announced the extension. Russia accounted for 14 percent of the global exports of wheat, flour and related products in the year to June 30, according to the U.S. Department of Agriculture.

Russia’s longer ban may contribute to higher global prices, raising concern there may be a rerun of the 2008 food crisis, when grains reached records and riots broke out in poorer states. In Mozambique, at least seven people died this week in clashes between protesters and police after the government boosted bread and electricity prices. World food prices rose last month to the highest level since September 2008, the FAO has said.

“In the past few weeks, global cereal markets experienced a sudden surge in international wheat prices on concerns over wheat shortages,” the FAO said in a website statement, announcing the meeting for Sept. 24 in Rome. The gathering would allow importers and exporters to meet, it said.
Longer Ban

Russia will extend the ban on grain and flour exports at least until next year’s crop is harvested, Prime Minister Putin said yesterday. The initial ban, announced on Aug. 5, was implemented from Aug. 15 and had been set to lapse on Dec. 31. Its announcement drove wheat futures to $8.68 a bushel the next day, the highest price in 23 months.

The December contract on the Chicago Board of Trade was at $7.1875 a bushel at 12:35 p.m. in Singapore, taking the weekly gain to 3.4 percent. Wheat, which peaked at $13.495 a bushel in February 2008, has jumped 50 percent in the past year.

“We can only review lifting the ban on grain exports after the next year’s crop is harvested and we have clarity on the balances,” Putin said in a government meeting in Moscow yesterday. Extending the export restrictions will add “predictability” to the market, Putin said.

World wheat production will fall 5.1 percent to 646 million metric tons this year on the Russian drought, from 681 million tons in 2009, the Rome-based FAO said Sept. 1 as the agency also reduced the outlook for overall grains production. “Wheat markets remain tight but supplies are adequate,” the FAO said.

Global wheat stockpiles remain higher than during the 2008 surge in prices, according to FAO estimates. Worldwide inventories at the end of the 2010-2011 marketing year may total 181 million tons, equivalent to 27.2 percent of demand, compared with 144 million tons, or 22.3 percent, at the end of 2007-2008.
Mozambique Clashes

Residents of Maputo, Mozambique’s capital, continued a strike yesterday for a second day over higher food and utility prices. Protests began after the government announced plans to raise water and electricity rates by 30 percent from Sept. 1, and the price of bread by 25 percent on Sept. 6.

Russia’s government has forecast that this year’s harvest may be slashed by as much as 38 percent as the worst drought in at least half a century parched crops. The nation’s harvests are typically completed in November.

“The probability is getting much higher” that Russia’s next wheat crop may remain below average, keeping the nation out of the export market longer than expected, Tetsu Emori, a commodity fund manager at Astmax Co., said by phone from Tokyo today. “They need a good amount of rainfall” to replenish soil moisture to be able to sow the next crop, Emori said.

Franciscus Welirang, chairman of the Flour Mills Association in Indonesia, said last month there may be another food crisis if the surge in wheat sparked by Russia’s export ban drove other staples higher. Indonesia is Asia’s largest buyer of the grain. “It’s the end of cheap wheat,” Welirang said Aug. 6.
December-delivery corn was unchanged at $4.475 a bushel at 12:38 p.m. in Singapore. Soybeans for November delivery advanced 0.6 percent to $10.1475 a bushel.

To contact the reporter on this story: Luzi Ann Javier in Singapore at ljavier@bloomberg.net

Pakistan cotton crop failure hands opportunity to India

Pakistan’s devastating floods may have destroyed up to a fifth of the country’s cotton crop, analysts say, handing an opportunity to exporters in neighbouring India who are eyeing the shortfall. 

Indian producers will seek to take advantage of a government decision last week to lift a ban on exports to help meet demand from Pakistan’s textile industry.

The restriction was imposed in April to keep domestic prices down. Armed with a bumper crop after a good monsoon, Indian groups are expected to begin exporting to Pakistan from October. “We are 100 per cent ready to meet Pakistan’s appetite,” said Dhiren Sheth, president of the Cotton Association of India, whose members include more than 400 leading cotton growers, ginners and exporters.

Pakistan’s textile sector, which accounts for 60 per cent of the country’s exports, is likely to be hit due to damage to the cotton crop, which could be 20 per cent below usual, according to analysts.

“Large fields of cotton have been washed away by the floods,” said Ibrahim Mughal, analyst with Pakistan’s independent Agri Forum organisation. “We will be short of about three million bales, which will burden our already fragile economy by at least one billion dollars,” Mughal said.

The worst natural disaster in the country’s history has already affected 20 million people in nearly a month of flooding and left 1,500 dead by official count. Five million people have been made homeless across the country, but that figure could surge if the swollen Indus river, whose fast-moving waters are piling pressure on sagging embankments, continues to fill up.

The flooding in Pakistan may result in agricultural losses of nearly three billion dollars, its agriculture ministry has said, with the main farming region of Punjab particularly damaged. “We have been importing cotton from India for the past few years now and should do the same now when we face a huge crisis,” said AB Shahid, an independent economist based in Pakistan.

Pakistan is one of the main importers of cotton from India, which is the second largest producer of the crop worldwide after China. Some mills are already calling for “regulated” exports, however, fearing a spurt in demand from Pakistan could send prices soaring in India.

“India should export only surplus. If the government does not regulate exports, the situation may get out of hand,” said IG Duria, corporate general manager with the Punjab-based Vardhman group, a leading mill.
Cotton prices are at a peak for the year, up by 12 percent in August compared to levels last month. Analysts forecast India will produce nearly 32 million bales of cotton in 2010-11, against 28 million bales in 2009-10.
Farm output is expected to rise in India owing to plentiful monsoon rains — a great relief to hundreds of millions of Indian farmers who struggled with the weakest rains in 37 years in 2009.

Indian inflation, after hitting double figures earlier this year because of high food prices, is now in decline, but is still the highest of the Group of 20 nations at 9.97 percent.

“Exports may be capped if September rains hurt the crop,” said Mehul Agrawal, agri-commodities analyst with Mumbai-based brokerage Sharekhan. Earlier this month, India offered five million dollars in flood aid to Pakistan, which Islamabad said was a “very welcome initiative”.

India and Pakistan have taken steps to improve a problematic relationship that was strained by the 2008 Mumbai terror attacks, which India blamed on militants from Pakistan. [Tribune.com.pk]