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LATEST NEWS UPDATES | Wheat rises, food shares fall on Russia export ban

Wheat rises, food shares fall on Russia export ban

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published Published on Aug 9, 2010   modified Modified on Aug 9, 2010

Wheat prices surged to a two-year high while shares in European brewers and food producers fell on Friday as markets reacted to the sudden imposition of a ban on grain exports from drought-hit Russia.

Russian Prime Minister Vladimir Putin moved decisively on Thursday to halt exports of grain and flour from August 15 to the end of the year and the country’s railroad monopoly said on Friday it will stop loading grain for export from Saturday.

The speed of the move shocked Russia’s Grain Union, the country’s main industry lobby, which pleaded with the government on Friday to delay the ban until September 1.

Russia had been the world’s third largest wheat exporter last year but is set to slide down the table this season with the worst drought in more than 100 years devastating crops.

“Effectively, a big chunk of the global market is off-line — there’s going to be something like 5 million tonnes that aren’t going to be available for export,” said Matthew Kaleel, a commodities specialist at fund manager H3 Global in Sydney.

Shares in Danish brewer Carlsberg, which faces a sharp rise in input costs, lost 4.5 per cent, while food companies such as Nestle and Danone also saw their shares decline in value.

Wheat futures on the Chicago Board of Trade rose to a peak of $8.41 a bushel, the highest level in about two years with prices nearly doubling since early June.

The rise has revived memories of the surge in prices in early 2008, when US wheat rose above $13 a bushel, which helped to fuel food inflation and led to rioting in many countries across the world.

Analysts, however, downplayed the link, adding that world stocks have grown steeply during the last couple of years which saw the two biggest wheat crops in history.

“Stocks are close to 50 per cent higher today (than they were during the last price spike in early 2008). You had a completely different scenario then,” said Barclays Capital analyst Sudakshina Unnikrishnan.

Persistent high prices could, however, drive fear of food inflation in key buyers such as Indonesia and the Philippines.

“If prices remain elevated for a sustained period, then the probability of upward adjustment in retail price of wheat and its derivatives goes up,” Barclays Capital said in a report.

“However, food prices tend to be politically sensitive, so we can expect some action from Asian governments,” it added.


The Business Standard, 7 August, 2010, http://business-standard.com/india/news/wheat-rises-food-shares-fallrussia-export-ban/403817/


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