Wheat prices are soaring again

Agricultural , Commodities Jun 28, 2012 No Comments

US droughtBecause of a drought around the Black Sea, wheat production in countries like Russia and Ukraine will be down this year. At the same time in the U.S., an unrelated drought affecting corn in the midwest is also impacting wheat.

In southern Russia breadbasket, the spring drought is still going on. As a consequence, harvest is expected to be down by 20-25%. In Ukraine, it will be even greater. Countries around the Black Sea account for 20% of world wheat trade, so when their harvest is poor, prices are soaring.

On the other side of the Atlantic, in the U.S., wheat is doing fine: two-third of the wheat production is winter wheat and it is already very advanced. However, corn harvest is under threat from a drought in the Midwest. As a consequence, corn prices are soaring which drives wheat prices up because corn or wheat can be used as cattle feed.

So, next harvest wheat prices went up 10% in a week in Chicago to $7 a bushel while in Paris a ton of wheat was over 220 euros. By comparison, when Russia imposed an embargo two years ago, wheat prices reached $260, but Russia has so far ruled this option out.

In the meantime, India, the second largest producer, is making the most of the situation: its stocks are overflowing and the rupee is low against the dollar making Indian wheat the most competitive in the world.

US drought

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Pascal Blanc

Pascal has implemented numerous software solutions in the areas of procurement, sourcing, spend management, supplier evaluation and performance. His clients include Fortune 500 companies in Europe, Asia and North America. He is a co-founder of Source & Procure.

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