Wheat Trades Limit Up As Russia Halts Grain Exports Through Year End

By now readers have likely seen the satellite photos of smoke clouds over pretty much all of western Russia, as today Moscow once again bakes in record heat and the entire former USSR breadbasket is caught in a historic drought. Recent concerns about the Soviet wheat harvest have already caused wheat prices to surge, yet this morning's announcement from Putin that Russia will stop all grain exports starting August 15 and continuing through the end of the year just sent what limit up. FT reports:  “I think it would be expedient to introduce a temporary ban on export grains and other agricultural goods,” Mr Putin told a cabinet meeting. “We cannot allow an increase in domestic prices and we need to maintain the number of cattle. Wheat prices rallied sharply on the news. In Chicago, wheat jumped by its daily limit of 60 cents to a new two-year peak above $7.85 a bushel, up almost 80 per cent in a little over a month. In Paris, European wheat hit €222.75 a tonne, up 6.6 per cent on the day." And it appears other commodities are set to follow: "Ïnterfax, the Russian news agency, earlier quoted a source in one of the economic ministries as saying that the export ban could affect wheat, barley, rye, corn and flour.”

This is not the first time Europe has locked out its critial grain exports:

Moscow introduced export restrictions during the 2007-08 global food crisis, triggering a wave of panic buying from North Africa and Middle East importers.

The worst drought in more than a century in the Black Sea region has led to widespread alarm in the wheat market, with prices recording their sharpest rise since 1972, when Moscow bought almost all the available surpluses in the US to cover a domestic shortfall.

Forecasts for the Russian grain crop have been falling daily, with the agriculture ministry’s most recent projection at 70m-75m tonnes, down from 85m tonnes a fortnight ago. Some private sector analysts, however, believe the harvest will be as low as 63m tonnes. Traders at Glencore, the world’s largest commodity trading company, on Tuesday warned the crop could fall to about 65m tonnes.

Russia harvested almost 100m tonnes of grains last year.

It's ok though. The deflationists will say the two year high in grain prices is purely imaginary, and the tens of trillions of zero cost money pumped in the market to date, and the tens of trillions of negative cost fiatscoes about to be injected once again, will do nothing to increase record volatility and jitteryness. And, of course, as everyone knows, input costs are just that. If a bakery in New York threatens to go bankrupt as a result of surging raw material prices, all they need to do is join a union, and Obama will subsidize the losses on a per loaf basis into perpetuity. It appears the deflationists are right as usual.