From miscalculation to emergency, the wheat crisis of 2010
The wheat supply and price crisis from June 2010 onwards has meant that consumers, producers and food industry processors are now struggling with price increases of as much as 90%. The wheat problem of 2010-11 is lurching from crisis to miscalculation to emergency at all scales. And even then, some big international commodities traders are counting windfall profits.
In the first week of August, Reuters reported that Russia’s worst drought on record has devastated crops in parts of the country and caused international grain prices to spike as markets placed bets that without shipments from one of the world’s leading exporters, global supplies would be restricted. Soon thereafter, Bloomberg reported that the share prices of US agricultural companies including Archer Daniels Midland, Monsanto and Potash Corp of Saskatchewan rose in New York trading amid speculation that US wheat exports will jump as importers seek alternatives to Russian grain.
According to the average estimate of analysts surveyed by Bloomberg, the US Department of Agriculture (USDA) will forecast that global wheat stockpiles before the 2011 harvest will drop to 171.09 million metric tons, from 193.97 million tons a year earlier. That will be smaller than the USDA’s 174.76 million ton estimate last month. The USDA has cut its estimates every month since May, when it predicted stockpiles at 198 million tons.
Farmers in Russia, the world’s third-largest wheat grower last season, lost between 50% and 60% percent of crops in the drought-stricken central and Volga River regions this year, Deputy Agriculture Minister Sergei Korolyov has told a conference in Moscow.
The Russian government’s ban left some of the world’s largest wheat importers scrambling to secure alternative supplies. Typically, Cargill, one of the world’s biggest grain agglomerators and foodgrain logistics companies, attacked Russia’s ban, saying that this amounted to “trade barriers”. Cargill’s cynical and profit-driven reaction indicates the rush to profit from what is clearly a foodgrains disaster in Central Asia and which has major implications for foodgrains importing countries in developing Africa and Asia.
Still, over a 3-6 month period, rising wheat prices will probably pinch foodgrains suppliers (who also take powerful positions in the international agricultural commodities trade) because they have signed contracts to supply wheat at lower prices than are prevailing in September. But, since the beginning of July 2010, wheat prices have jumped straight up. Increasing demand from important regions of the world and other supply problems beyond Russia’s drought, such as floods in Canada, crop failure in Ukraine and foodgrains storage and movement problems in India will substantially add to the 2010-11 global wheat crisis.
The uncertainty has also spread to corn. Reuters has reported crop forecaster Informa Economics stating that the USDA report will show the corn yield at 164.8 bushels per acre, below the USDA’s August estimate of 165 bushels. Informa also told clients that the USDA’s final yield estimate for 2010 was likely to be significantly lower at 158.5 bushels per acre. Informa’s estimate of the USDA’s likely final yield count helped propel Chicago Board of Trade corn futures to their highest level in nearly two years.
Earlier last month (August 2010) the World Agricultural Supply and Demand Estimates (WASDE) monthly report, which provides USDA’s comprehensive forecasts of supply and demand for major global crops, said that global wheat supplies for 2010-11 are “reduced sharply with world production lowered 15.3 million tons, mostly on reductions for FSU-12 (former Societ Union) and EU-27 (European Union) countries”. It said production for Russia is lowered 8.0 million tons as continued extreme drought and record heat during July and early August have further reduced summer crop prospects. Kazakhstan production is lowered 2.5 million tons reflecting the same adverse weather conditions as in Russia. Ukraine production is lowered 3.0 million tons as heavy summer rains damaged maturing crops and hampered harvesting in western and southern growing areas.
WASDE also said EU-27 production is “lowered 4.3 million tons with yields reduced for northwestern Europe on untimely heat and dryness”. Yields are lowered for southeastern Europe as heavy rains from the same weather pattern that affected Ukraine reduced output. Production is also lowered for Algeria, Brazil, Uruguay, Belarus, and Croatia. Partially offsetting are increases for India, the United States, Australia, and Uzbekistan.