May 30 (Bloomberg) -- Russia, once the second-biggest wheat exporter, will let a grain-shipment ban expire on July 1, a move that may fail to ease a global shortage caused by drought and flood damage to European and U.S. crops.
Futures climbed 79 percent in the past year in Chicago, the global benchmark, helped by Russia’s export ban in August after the worst drought in at least 50 years. Poor weather from Canada to Europe destroyed harvests and Ukraine imposed shipment quotas. Rising prices drove global food costs tracked by the United Nations to a record in February.
“Whether they actually have major exports from that time or not remains to be seen,” said Michael Pitts, commodity sales director at National Australia Bank. The ban’s removal doesn’t necessarily mean there will be enough supply to offset losses in Europe and the U.S., he said in an interview from Sydney today.
Increasing food costs have contributed to faster inflation around the world, spurring at least two dozen central banks and the European Central Bank to raise interest rates this year, data compiled by Bloomberg show. Higher interest rates may curb global economic growth that the Organization for Economic Cooperation and Development said May 25 would increase to 4.6 percent next year from 4.2 percent this year.
Milling wheat for November delivery dropped as much as 5.3 percent to 237.75 euros ($339.41) a metric ton on NYSE Liffe in Paris, and was down 4.9 percent at 238.75 euros by the 6:30 p.m. close. The Chicago markets are closed today for a holiday.
The export ban won’t be extended, Prime Minister Vladimir Putin said during a meeting with First Deputy Prime Minister Viktor Zubkov outside Moscow on May 28. Russian grain plantings climbed 10 percent to 24 million hectares (59 million acres) and the government has more than 6 million tons of grain in reserves, Zubkov, who oversees the agricultural sector, told Putin.
Russia can export 2.5 million tons a month, said Arkady Zlochevsky, president of Russia’s Grain Union. Traders have already started to deliver small amounts to ports in the past two weeks and the main customers are countries in North Africa and the Middle East, he said in Moscow today.
Farmers worldwide will reap 667 million tons of wheat in 2011-2012, trailing demand of 669 million tons, the International Grains Council said May 26. The agency pared its production estimate from 672 million tons in April, cutting stockpiles to 185 million tons, the lowest since 2008-2009.
The harvest prediction was reduced because of unfavorable weather in a number of countries, especially the European Union and the U.S., it said. Traders are expecting Russia to lift the embargo, it said May 26, two days before the announcement.
Prices are unlikely to slump as the market has already anticipated Russia’s return, said Vijay Iyengar, managing director of AgroCorp International Pte in Singapore, who correctly predicted in February that corn would be the best-performing agricultural commodity in the first half.
In the U.S., the world’s largest wheat shipper, about 45 percent of the winter wheat crop was in very poor or poor condition as of May 22, compared with 44 percent a week earlier, and 9 percent a year earlier, the USDA said May 23. About 54 percent of the U.S. spring-wheat was planted, behind last year’s pace of 89 percent, also the average in the past five years.
France’s soft-wheat crop, the European Union’s largest, will drop 12 percent, and German output will slide 7.2 percent, local forecasters said May 18.
While Russia’s exports may add to the supply of global feed wheat, there will still be a shortage of the higher-grade grain used for making bread, pasta and noodles, said Ric Pinca, executive director of the Philippine Association of Flour Millers, in a phone interview from Manila today.
About 124 million tons of the 670.5 million tons of wheat demand in 2011-2012 is intended for feed and the rest for food, the U.S. Department of Agriculture said May 11.
Buyers in Asia including Japan, South Korea, Taiwan, China and the Philippines are unlikely to rush to the market to buy Russian wheat, considered to be lower quality than that from the U.S., Canada and Australia, said Pinca. The Philippines is the second-largest buyer in Southeast Asia.
In Canada, planting was also delayed by excessive rains. About 53 percent of the crop was planted, trailing the normal pace of 75 percent, the Canadian Wheat Board said May 24. By contrast, Russia’s Agriculture Ministry estimates the total grain harvest may be 85 million to 90 million tons, up from 60.9 million tons last year.
Russia will export 10 million tons of wheat in the 12 months ending June next year, up from 4 million tons in the current year, according to the USDA. That’s less than the 18.6 million tons sold a year earlier. Corn shipments will increase to 1 million tons from 25,000 tons and barley cargoes to 800,000 tons from 300,000 tons, the USDA estimates.
Ukraine President Viktor Yanukovych said in an interview May 24 he would lift export quotas because of forecasts for a 15 percent increase in the harvest. Ukraine, once the world’s biggest barley exporter, set shipment quotas on corn, wheat and barley in October after drought ruined crops.
Wheat for July delivery advanced 0.6 percent to $8.1975 a bushel on the Chicago Board of Trade on May 27, while corn jumped 1.7 percent to $7.585 a bushel.