Russian Export Ban Shocks Wheat Markets
by U.S. Wheat Associates Posted on 8/5/2010
Excerpt from U.S. Wheat's 8/5/2010 "Wheat Letter".
The news today that the Russian government has announced a ban on wheat exports effective August 15 to December 1 will inevitably roil world wheat markets that were already reacting unusually to the potential impact of drought on the Russian wheat crop. This is a potentially difficult decision for Russia's wheat customers.
Export bans work against wheat buyers and users and force the rest of the market to restore the supply/demand balance and absorb the price shock. Restrictions distort trade and artificially drive up global wheat prices to the detriment of all importers and consumers. To make matters worse, the latest Russian government intervention likely brings force majeure into play and some importers counting on their purchases may find themselves short of supply. There is a curious context to all of this: not too many weeks ago, Russian grain officials were publicly predicting that their country would be the dominant source of wheat to the world and would likely sell up to 40 percent of its significant intervention stocks.
Any buyer who lived through the supply shock of 2007/08 will recall that the U.S. remains a truly reliable milling wheat supplier to the world.
"In the genuinely open market we have in the U.S. today there is always wheat available at some price, both to domestic and international buyers," said USW President Alan Tracy. "Supplies can be plentiful or tight, but the system finds a price that rationalizes the supply and demand balance. As we have said many times before, the U.S. wheat store is always open."
"Our industry is committed to sound commercial practice in the best interest of all stakeholders in the grain supply and demand chain," said Gary Martin, President and CEO of the North American Export Grain Association (NAEGA). "The pressure has never been greater on agriculture to provide for global food security, food defense and energy security while providing for available, high quality, safe products throughout the value chain. The role of international trade in grain, oilseeds and other agri-bulks is expanding, increasingly complex and dependent upon sound, reliable, predictable and practical official and commercial measures.
"Contract Sanctity is the unquestioned centerpiece of sound commercial practice," Martin added. "Likewise Contract Sanctity is unquestioned as fundamental to providing for improvements in food availability, economic stability and growth through sustainable production and marketing practices."
