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Wheat Prices Ease on Supply Reports

CHICAGO — This summer, a prolonged, severe drought led Russia one of the worlds largest wheat exporters to ban exports of the crop. The result was a significant spike in wheat prices on the world's futures markets. Many producers feared a repeat of the food crisis of 2007 and 2008, when a combination of factors including rising global demand, federal ethanol mandates in the U.S. and non-commercial speculation

CHICAGO — This summer, a prolonged, severe drought led Russia — one of the worlds largest wheat exporters — to ban exports of the crop. The result was a significant spike in wheat prices on the world's futures markets. Many producers feared a repeat of the food crisis of 2007 and 2008, when a combination of factors including rising global demand, federal ethanol mandates in the U.S. and non-commercial speculation on the commodities markets sent the price of corn, wheat and soybeans soaring, affecting suppliers ranging from bakers and soft-drink manufacturers to egg and beef producers.

However, recent reports indicate that excellent wheat harvests in the U.S., Canada and Australia will easily offset losses from Russia. The United Nation's Food and Agriculture Organization now estimates that global wheat production this year will exceed 645 million tons, making it the third largest harvest on record.

Last week, wheat futures on the Chicago Board of Trade were trading above $7.20 per bushel, significantly higher than June lows of around $4.26 per bushel. However, the reports of good harvests from the U.S. and Australia began pressuring prices slightly lower.

This turnaround in the supply outlook is good news for food producers — especially those in the baking industry. However, as a report in this month's issue of The Economist noted, increasing price volatility for staple commodities like wheat is not a good trend. It sends confusing signals to farmers regarding what crops they should plant for next year's harvest, and panics like this most recent one are exacerbated by export bans and hoarding.

“During the previous food crisis several countries including Argentina and India as well as Russia reacted to the spiraling price of food crops with export bans, making the supply problem worse,” the article notes. “Today's lower prices and higher stocks should make that unlikely. But if other exporters do follow Russia's example they may frighten importers into buying more wheat at whatever cost, ratcheting prices up even more.”