Wheat prices surged more than 7 per cent on Wednesday to a fresh two-year high even as the United Nations attempted to quell growing panic in the markets.
CBOT September wheat rose to a fresh peak above $7.30 a bushel, the highest since September 2008, amid rising alarm over the state of the wheat crop in the Black Sea region, which has been ravaged by the worst drought in more than a century. The UN’s Food and Agricultural Organisation said that fears of a repetition of the 2007-08 food crisis were unjustified.
But it also cut its forecast for global wheat production by 25m tonnes to 651m tonnes, making the biggest revision in 20 years, and warned that a continuation of the current weather conditions could affect planting of the next Russian crop, with “potentially serious implications” for global wheat supplies in the 2011-12 season.
Nonetheless, the FAO said two years of record crops had replenished global inventories sufficiently to cope with lower production this year. “The world wheat market remains far more balanced than at the time of the world food crisis in 2007-08 and fears of a new global food crisis are not justified at this point,” the agency said.
The 2007-08 crisis followed three years of poor harvests, which drew down global inventories to historically low levels. The fall in stocks drove up the cost of agricultural commodities from corn to rice, causing them to surge to record highs. There were food riots in countries including Haiti to Bangladesh. Then, the price of wheat rose above $13 a bushel.
The severe drought in Russia has come on the back of recent bad weather in other growing regions such as Canada, pushing wheat prices up 60 per cent in little more than a month. Forecasts for the Russian grain crop have been falling daily, with the agriculture ministry’s most recent projection at 70m-75m tonnes, down from 85m tonnes a fortnight ago.
Some private sector analysts, however, believe the harvest will be as low as 63m tonnes. If they are right, the FAO’s forecast, which predicts Russian grain production of 72m tonnes, may have to be revised again when it is updated in September.
Abdolreza Abbassian, senior grains economist at the FAO, said the sharp revision reflected the market’s increasing dependence on the Black Sea region, which has a history of erratic yields. “For the 20 years I have followed grain markets we have never made such a drastic revision to our forecast over two months,” Mr Abbassian said. “This shows the growing importance of the region. It is really a wake-up call.”
The European Commission on Wednesday projected European Union cereal production in line with the average of the past five years but below last year’s levels.
Gold rebounded above $1,200 an ounce for the first time in almost two weeks on rising expectations of looser US monetary policy. The yellow metal notched up its sixth consecutive daily gain, up 1.2 per cent at $1,199.50 a troy ounce, having previously hit a peak of $1,202.85.
In oil, Nymex September West Texas Intermediate hit $82.47 a barrel.
Additional reporting by Stanley Pignal in Brussels