NEW YORK — A collapse in foreign wheat supplies caused by a severe, prolonged drought in Russia led to a 42% rise in domestic wheat prices during the month of July. The $1.97 per-bushel increase was the largest monthly gain in prices for wheat contracts since 1959, and it returned wheat futures to levels last seen in September 2008.
The drought has already destroyed about 20% of Russia's grain crop in key growing regions, according to published reports. Russian officials appear likely to curb grain exports, fueling additional worldwide demand for U.S. wheat, and pushing domestic prices higher, according to a wire report from Bloomberg.
Rising domestic wheat prices could eventually translate into higher prices for staples such as bread, cereal and pasta, Ephraim Leibtag, an economist for the U.S. Department of Agriculture's Economic Research Service, told the Associated Press.
However, wheat futures are still well below peaks reached in early 2008, when $13.49 per bushel wheat sent the price of flour soaring, and forced suppliers and in-store bakeries to pass along increased input costs to shoppers.
Citing the situation in Russia, as well as a decline in exports from Canada, the United Nations Food and Agriculture Organization cut its world wheat production forecast for 2010 by 25 million tons. But, the FAO said that fears of a global crisis similar to the one that caused market volatility in 2007 and 2008 were “unwarranted.”