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Russia: Fires scorch wheat crop

Loss of 25 percent of Russian wheat crop worries international grain markets.

Russia fires
Russian firefighters spray water on a blaze in the forest near the village of Zdorovie, east of Moscow, on Aug. 10, 2010. Russia is starting to count the losses of the worst heatwave in its history, with economists warning the weather may cost the country up to $15 billion and undercut a modest economic revival. (Viktor Drachev/AFP/Getty Images)

MOSCOW, Russia — The deadly forest fires ravaging the Russian countryside have wiped out a quarter of Russia’s grain crop, prompting the country to ban all wheat exports as of Sunday and inflaming worries of a global food crisis.

A similar food crisis in 2007-08 provoked riots around the developing world, from Bangladesh to Yemen and from Haiti to the Ivory Coast. Is the world in store for a similar fate this year? Not necessarily, analysts say.

This time around, global reserve stocks are stuffed, and healthy grain crops in countries like the U.S. and Argentina are expected to mitigate Russian shortfalls. This year, a crisis will likely be avoided, analysts say.

Yet with Russia already making predictions that its fall and winter planting will likely be disrupted, bigger problems could lie ahead. And analysts warn that a heavy reliance on this year’s record U.S.
crop means that if the weather stateside changes, all predictions would go out the window.

Russia is the world’s third largest grain producer, taking roughly a 13 percent share of the global wheat trade. Much of Russia's wheat is exported to the Middle East. Egypt is its largest market, followed by Turkey, Syria, Iran and Libya, according to reports.

Since the heat wave, and its attendant drought and fires, began nearly two months ago, Russian officials have repeatedly revised downward the amount of wheat expected to be harvested this year. The latest estimates put the figure at between 60 and 65 million tons, some 20 million tons fewer than expected before the crisis hit.

Russia’s domestic demand alone stands at around 77 millions tons. Luckily, agriculture officials say, it has managed to store nearly 22 million in reserves.

Yet announcements of a Russian shortfall have already helped wheat prices soar. By early August, they had risen nearly 70 percent in 30 days to reach a two year high. Analysts blame that mainly on
speculators and market uncertainties. As the situation in Russia began to become clearer, and speculators began to fade away, prices started to dip back down.

In a bid to protect Russia against the global price rise, Prime Minister Vladimir Putin on Aug. 5 announced a ban on wheat exports, which came into effect Sunday and will last at least until the end of the year.

That means less wheat on global markets — but does it mean critically high price rises? Not necessarily.

Experts point to strong reserve stocks of grain, following two years of better than expected harvests. And strong production is expected to come this year from the U.S. and Argentina, making up in part for Russian shortfalls.

On Monday, an economy ministry official in the United Arab Emirates said there was “no shortage of any kind.” “There are alternatives,” Hashem Al Nuaimi told Dow Jones newswires.

In Saudi Arabia, the CEO of Herfy, one of the Middle East’s largest restaurant chains, said it did not expect to be affected by the ban. “Herfy has wheat reserves enough for four to six months, so we won't affected this year of any price increases caused by the Russian ban," Ahmad Hamad Al Saeed told al-Arabiya on Sunday.

Other signs outside Russia look positive. On Thursday, agriculture authorities in Kansas said they expect a record corn crop this year.

“Even taking into account Russian, Ukrainian and Kazakh losses, there is going to be enough grain this year,” said Konstantin Fastovets, an analyst at Renaissance Capital, a Russian investment bank. An expected increase in the global harvest of wheat substitutes like corn and millet, as well as confidently high stockpiles, should avoid a severe crisis, he said.

“Prices are going to be higher year-on-year,” Fastovets said, predicting an 8 percent overall rise. “It’s not a drastic price rise, but it is a price rise nonetheless.”