Heatwave in Russia Hits Economy & World Wheat Prices

Russia’s worst heatwave on record has stoked wildfires and parched crops in last year’s No. 3 global wheat exporter, leading to a grain export ban, sending prices of wheat to two-year highs at one point and prompting the World Bank to warn against hasty restrictions on exports. Economists say the heatwave could knock 1 percentage point off Russia’s gross domestic product, weakening an economic recovery from a 2009 slump due to the global financial crisis.

Aleksandras Budrys for Reuters (11 August 2010):

MOSCOW – Scorching heat will keep hammering Russia for the next 10 days, a top weather official has said, and seeding for the winter grain crops is in danger if there is no rain after that.

Russia’s worst heatwave on record has stoked wildfires and parched crops in last year’s No. 3 global wheat exporter, leading to a grain export ban, sending prices of wheat to two-year highs at one point and prompting the World Bank to warn against hasty restrictions on exports.

“The situation is not changing radically,” deputy director of Hydrometcentre, the government weather forecasting unit, Dmitry Kiktyov said of the heat wave that has cost 54 lives in fires and, economists said, could wipe $US14 billion off economic growth.

“The temperature will change insignificantly, and there will be only local rains. They will be insufficient to cushion the current situation,” he said.

The drought could slash Russia’s 2010 grain output by nearly 40 per cent to 60 million tonnes, and the winter wheat sowing campaign could begin to be in jeopardy if there is no rain during or right after the next 10 days.

“Our investigations show that the sowing may be delayed by some 10 days without losses. But only in case of rains,” agricultural forecasting official Anna Strashnaya told Reuters.

Prime Minister Vladimir Putin, who said Russia’s ban on grain exports could extend into next year, noted the drought could prevent some regions from starting the sowing campaign for the 2011 winter grain crop, which normally accounts for roughly 40 per cent of the total.

The majority of Russia’s grain crops are not planted until the spring, allowing much more time for conditions to improve.

World bank

On Tuesday, World Bank President Robert Zoellick cautioned against countries taking any action that could add to market uncertainty, in particular widespread export bans like Russia’s.

“The situation in world grain markets is very uncertain and therefore somewhat volatile,” Mr Zoellick told reporters in Sofia.

“What is better this time is that the buffer stock is a little higher than a couple of years ago,” he said, referring to tightness in global grains markets in 2008.

“We are cautioning countries about taking actions that might be appealing domestically but could add uncertainty on markets such as bans on exports,” Mr Zoellick said, echoing comments by World Bank Managing Director Ngozi Okonjo-Iweala.

Economists say the heatwave could knock 1 per centage point off Russia’s gross domestic product, weakening an economic recovery from a 2009 slump due to the global financial crisis.

The crop failures will hit Russian farmers particularly hard. Only around 25 per cent of Russia’s crops are insured, compared with 80 per cent in the United States, Swiss Re, the world’s second-biggest reinsurer said on Tuesday.

Wheat markets slid further on Tuesday from last week’s two-year highs, as traders assessed the damage to grains production across the Black Sea region that also includes major grains producer Ukraine, and pointed to ample stocks after two years of good harvests.

“With these bull runs you need to keep feeding the rally and we’ve seen most of the bad news now,” Rabobank analyst Luke Chandler said.

Wheat prices on the Chicago Board of Trade traded as low as $US6.90 a bushel on Tuesday, around 18 per cent below last week’s peak of $US8.41, before rebounding to $US710-1/4 by 1559 GMT.

Prices remain far below the peaks set during early 2008 when shrinking inventories and rising energy markets saw CBOT wheat futures rise as high as $US13.34-1/2.

The two largest global wheat crops in history in 2008 and 2009 have resulted in much higher stock levels now and a return to the prices seen two years ago is considered unlikely.

Still, prices remain more than 50 per cent higher than June lows, and importers are reluctant to commit to deals at current prices.

Turkey’s state grain office said on Tuesday it had sufficient wheat stocks while Jordan said it had enough wheat stocks to cover its needs for six months but would be forced to switch to more expensive US or European grains.

Source: www.climatespectator.com.au