Wheat Jumps as Drought Cuts Into Production in Russia, Western Australia

Wheat jumped for a second day in Chicago and Paris on concern that lower production in Russia because of drought and a smaller grain harvest in Western Australia may cause scarcity in export markets.

Wheat for September delivery rose 2 percent to $6 a bushel on the Chicago Board of Trade at 2:14 p.m. Paris time, paring a climb of as much as 2.3 percent to $6.02, the highest price for a most-active contract since Nov. 18. Milling wheat for November delivery gained as much as 3.6 percent on NYSE Liffe in the French capital.

The grain surged more than 25 percent in Chicago and Paris in the past month as drought cut the outlook for harvests in Russia, Kazakhstan and northwestern Europe and flooding hurt crops in Canada. Western Australia’s grain crop may drop to 9.5 million metric tons this year on dry conditions, grain handler CBH Group said.

“The Russian situation is being watched by everyone,” said Luke Chandler, an analyst at Rabobank in London. As some major exporters face production problems, Australia “has to be a key risk, given the increased reliance on the U.S. and Southern-Hemisphere exporters,” he said.

The CBH forecast for Western Australia compares to a “large crop” of 14.5 million tons and production of 6 million tons for a drought crop, Chief Executive Officer Andrew Crane said in an interview. Planting in the state this year was completed in dry conditions, the Australian Bureau of Agricultural and Resource Economics said last month.

Stockpiled Grain

November-delivery milling wheat was recently up 3 percent at 180.25 euros ($231.81) a ton in Paris after rising as high as 181.25 euros, the highest price since the contract started trading in March 2009.

Russia’s government will begin sales of more than 3 million tons of stockpiled feed and food-quality grain in domestic tenders from Aug. 4 to help drought-stricken regions, the Agriculture Ministry said yesterday.

“The drought is worsening with every day that goes by,” Paris-based farm adviser Agritel said in a comment on its website. “The government is certainly worried about the situation of farmers, but above all the food balance of the country, with spiraling prices.”

Russia’s government on July 20 declared states of emergency in six more crop-producing regions due to the worst drought in at least a decade, bringing the total to 23.

Exports From Russia

“The big risk is if Russian production becomes so troublesome that the government comes in and actually puts in bans,” Rabobank’s Chandler said. “If you get Russia stopping exports, we’re going to blow through $7” a bushel, he said.

Gains above $6 a bushel for Chicago wheat may enable the contract to rise further, according to the analyst.

“That’s the first time it’s broken through $6 this year,” he said. “It has become a bit of a resistance level. The fact that it has broken through today may open some upside.”

Corn for December delivery rose 0.9 percent in Chicago to $3.97 a bushel and soybeans for delivery in November climbed 0.9 percent to $9.8725 a bushel.

To contact the reporter on this story: Rudy Ruitenberg in Paris at rruitenberg@bloomberg.net.