Inflation remains deseeded

A drought and heat wave in the Black Sea region is estimated to have destroyed a quarter of Russia’s grain crop and led to a ban on exports. Ukraine is also ready to impose export quotas, which traders have criticised as overly restrictive.

FAO economist and cereals analyst Abdolreza Abbassian told reporters that he expected wheat prices to remain high and volatile in the coming months but that they did not pose a threat of global inflation.

“To talk about food inflation when the bulk of the increase is in wheat is a bit too early,” he said.

Earlier in the summer, wheat futures in Chicago rose to the highest levels in about two years, peaking at $8.41 a bushel after a two-month rally fuelled by the Russian drought.

They have subsequently fallen back below $7.00 a bushel on the front month as high global stocks also helped cap the rally and keep prices far below the peak of $13.34-1/2 set in February 2008.

Buyers such as Egypt, the world’s largest wheat importer, also are turning to the US, which has ample capacity.

Prices were bolstered by analysts’ and traders’ comments that Russia might become a significant importer of wheat this season.

But a spokesman for the Agricultural Ministry told RIA news agency that the country had no plans to import grain this year. “This rumour is being spread by dishonest grain traders in order to heat up the market,” he said.

Changes in output forecasts

Abbassian has estimated that wheat output in Russia was likely to fall by about 20 million tonnes to 42-43 million tonnes this year.

He had said that the FAO was set to cut its 2010 world wheat output outlook by five to seven million tonnes and trim its global wheat stocks estimate by a couple of million tonnes to take into account Russia’s shortfalls.

The index rise is to be driven by cereals, sugar and vegetable oils and fats, he said.

It rose to a 165.5 reading in July, its highest since February, but it was still far away from its peak reading of 213.5 in June 2008, in the middle of the global food crisis which triggered food riots in developing countries.

Countries such as India where food accounts for a large part of the inflation index could indeed see a risk of food inflation, Abbassian added.

Moreover, if bad weather continues in Russia and hits other major producers in the northern hemisphere as they prepare for their winter plantings campaign, then next season’s global wheat supplies could be at risk, he said.

But that possibility is “very small” at present, because weather conditions appear to be improving in Russia, he said.

Surging wheat prices are likely to prompt farmers around the globe to sow more wheat for the next season, creating the theoretical possibility of a glut, he added.