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Wheat Heads for Biggest Monthly Increase Since 1973 on Russia

Wheat harvest
A combine harvests wheat in the Rift Valley near Narok, Kenya. Photographer: Trevor Snapp/Bloomberg

Wheat rose for a fourth day in Chicago, heading for the biggest monthly gain in more than three decades, on concern that drought in Russia and parts of Europe will crimp global supply.

September-delivery wheat gained 1.7 percent to $6.38 a bushel on the Chicago Board of Trade at 2:14 p.m. Paris time, the highest price for a most-active contract since June 2009. The contract is set for a 33 percent monthly jump, the biggest since August 1973.

World wheat stockpiles may slide 2.5 percent to 192 million metric tons by June 2011 as “prolonged dry weather” hurts the outlook for crops in Russia, Kazakhstan, Ukraine and the European Union, the International grains Council said yesterday, reversing a June forecast for higher inventories.

“Russia is spurring on the market,” Maxime Jouenne, an analyst at Paris-based farm adviser Agritel, said today. “The market is super-nervous, and operators are looking at the Russia situation,” including possible export restrictions, he said.

Russia declared emergencies in 27 crop-producing regions, four more than a week earlier, because of the worst drought in at least a decade. Dryness damaged at least 10.3 million hectares (25.5 million acres) of crops, the government said today, up from 10 million hectares a week ago.

Sale to Soviets

Chicago wheat prices more than doubled in 1973, rising 31 percent in July and 42 percent in August, after the U.S. sold about 440 million bushels (12 million tons) of subsidized wheat to the Soviet Union in July and August 1972.

The so-called Russian Wheat Deal was equivalent to 30 percent of average annual U.S. wheat production in the previous five years, according to a 1973 report by the Federal Reserve Bank of St. Louis. The sale was criticized after a “sharp increase” in U.S. food prices, the report shows.

Milling wheat for November delivery rose as much as 3.5 percent on NYSE Liffe in Paris to 194.50 euros ($252.56) a ton, the highest since it started trading in March 2009. The contract was last at 193 euros, on track for a 32 percent gain this month.

The Russian wheat crop will fall to 50 million tons in 2010, 7 million tons less than forecast in June, the grains council said yesterday. Wheat exports from the country may slump to 9.5 million tons in the 2010-11 season from 18 million tons a year earlier, the Moscow-based Institute for Agricultural Market Studies, known as IKAR, said yesterday.

Export Duty?

The institute “doesn’t exclude” that Russia would impose a restrictive grain export duty in 2011 to curb exports by private producers, Oleg Sukhanov, IKAR’s chief grain-market specialist, said via phone yesterday.

“If Russia is not very present in the coming marketing year, it opens the way for U.S. exports,” Agritel’s Jouenne said. “We’ll see the U.S. more present in export markets.”

U.S. exporters sold 919,894 tons of wheat as of the week ended July 22 for delivery in the year ending May 31, more than double a week earlier and up from 575,070 tons a year earlier, the U.S. Department of Agriculture said yesterday.

“Given the weather conditions in the world, I feel more focus will be on the grains,” Jonathan Barratt, managing director at Commodity Broking Services Pty in Sydney, said in e-mailed comments. “This should support all grain prices.”

The United Nations Food and Agriculture Organization’s cereal-price index, which tracks prices of wheat, rice and corn, rose to 160.9 points in July from 151.7 a month earlier, the agency said on its website yesterday. That was the highest level in five months,

December-delivery corn, which competes with wheat as an ingredient for livestock feed, gained 0.6 percent to $3.9625 a bushel in Chicago. Soybeans for November delivery climbed 0.7 percent to $9.9525 a bushel.

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