Russian Wildfires Kill 34 as Drought, Heat Drive Wheat Prices 19% Higher

Wildfires raging across central Russia claimed 34 lives and blanketed cities in a smoky haze as drought and record heat cut crop yields, driving wheat prices as much as 19 percent higher last week.

About 156,000 firefighters are battling 693 blazes on more than 120,000 hectares (463 square miles), according to the Emergency Situations Ministry. Since the start of the fire season, 565,737 hectares have been consumed by flames, the ministry said in an e-mailed statement today.

In many regions, including Moscow, July was the hottest month since records began 130 years ago, and the heat wave will last at least through the end of this week, the state Hydrometeorological Center said on its website.

The sweltering summer has hit Russian agriculture, which accounts for 3-4 percent of gross domestic product, according to Aleksandra Evtifyeva, a Moscow-based economist at VTB Capital. Heat and drought have forced the government to declare states of emergency in 27 crop-producing regions.

The drought may reduce Russia’s grain harvest by 23 percent to 75 million metric tons this year, according to the Grain Union. Russian wheat prices increased as much as 19 percent last week, research group SovEcon said.

Wheat Futures

Kirill Podolsky, chief executive officer of Valars Group, Russia’s third-biggest trader, said some farmers are revoking even pre-paid grain contracts, speculating that prices will rise further.

Russian wheat prices are rising faster than at the peak of global food crisis in 2008, the Grain Union said.

Wheat futures surged to a 22-month high in Chicago on speculation that dry, hot weather may force Russia to curb exports, squeezing global supplies.

Russia’s grain exports may fall to 14 million metric tons in the marketing year that began July 1 from 21.5 million tons in the previous period because of the record drought, said Anton Shaparin, a spokesman for the Grain Union.

The impact of the drought on output, food prices and inflation remains unclear, Evgeny Gavrilenkov and Anton Stroutchenevski, economists at Troika Dialog in Moscow, wrote in a research report.

“Unsurprisingly, inflation expectations are high, opinion polls suggesting that more than 70 percent of Russians expect prices to rise,” they wrote.

‘Summer Breaks’

Not all agricultural products will be negatively affected by the heat wave, the Troika economists said, citing corn and rice as crops that may benefit.

Industrial output may also suffer in July and August from extreme weather, VTB Capital’s Evtifyeva and Dmitry Fedotkin said in an e-mailed note today. “In particular, major automakers have announced summer breaks due to the extreme weather conditions.”

Last week, state-run automaker OAO AvtoVAZ suspended production because of the heat.

President Dmitry Medvedev today declared states of emergency in seven regions in a bid to prevent new fires. In a decree, Medvedev ordered the army and volunteers to be brought in to help in the fire-fighting effort, the Kremlin said on its website.

The government may spend more than the 5 billion rubles ($166 million) already earmarked to help the country rebuild from the fires, Prime Minister Vladimir Putin said.

The government estimates that destroyed homes will cost an average of 2 million rubles each to replace, with another 1 million rubles to repair utilities and infrastructure, Putin said.

To contact the reporters on this story: Maria Kolesnikova in Moscow at mkolesnikova@bloomberg.net; Maria Levitov in Moscow at mlevitov@bloomberg.net

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