Global grain markets vulnerable to fresh shocks
Wheat stocks in all other big exporter nations outside the US – such as the EU, Canada, and Australia – are at about the same level as during the peak of the crisis in 2007-08.
The global market was therefore vulnerable to any fresh shocks such as weather-related problems in Argentina and Australia – and logistical logjams if the US has to ship its wheat exports at the same time as large harvests of maize and soyabeans.
After shooting to a two-year high last week, wheat future prices fell 13% early this week, with speculators apparently pricing in the huge global stores of grain held by farmers and governments, and betting that weather conditions improve.
But Russian sources warned their grain export ban could be extended into 2011; fears were expressed that China’s state grain inventories will be unavailable for export; and experts estimated that up to 10m tonnes of wheat and rice in India may deteriorate in poor storage facilities.
Meanwhile, scorching heat forecast in Russia for the coming days could endanger sowing of winter grain.
However, total Russian/European wheat losses due to drought could be replaced from the US, and still leave American stocks at 17 million tonnes.
The grain trade is anxiously watching developments in Australia, where patchy rain and fears of a locust plague threaten the wheat crop. Western Australia, with nearly 40% of the country’s cereal production, is forecast to receive rains just in time.
The European Flour Milling Association has said that market speculation is a key reason behind the wheat price rises.
The association said speculators were exaggerating uncertainty over harvest prospects, and co-ordinated EU-wide action was needed urgently to end food price volatility induced by speculators. Quotations on the EU market had increased since the beginning of July by more than 40% for wheat, according to the association.
Speculation is thought to be more of a factor since financial capital has shifted from speculation on housing and complex derivatives to commodities, including food. While financial markets have been regulated to curb excessive speculation – which was partly blamed for the global recession – commodity markets have remained largely untouched. This is seen as a major problem for governments, especially if speculation raises food prices for the world’s poorest three billion people, posing the risk of social breakdown triggered by food riots.
