A severe drought destroyed one-fifth of the wheat crop in Russia and wildfires swept in to finish off some of the fields that remained.
A temporary ban on Russian grain exports will boost income for U.S. farmers this year, but more demand could cause shipping bottlenecks.Russia, one of the world’s largest exporters of wheat, is facing a shrunken crop due to a severe drought. Its announcement Thursday that it will ban grain exports through the end of the year to control domestic prices raises the possibility of stronger-than-expected U.S. exports.
That caused a surge in the price of U.S. wheat, which in turn lifted corn and soybean prices.
The rising grain prices can be expected to at least fulfill, if not exceed, the U.S. Department of Agriculture’s forecast of a 10% increase in farm income this year.
But an export-driven surge in transportation demand could cause problems for railroads.
Jim Young, CEO of Union Pacific, told The Des Moines Register‘s editorial board Thursday that the railroad would be “challenged” to handle a bigger load after this year’s corn, soybean and wheat harvests.
“In recent years we’ve had excess capacity,” said Young, whose Omaha-based railroad connects the Midwest with ports in Texas and the Pacific coast. “This year we might have more demand. I am concerned about the availability of freight cars for grain shipments.”
In the U.S., wheat for September delivery rose by 60 cents per bushel Thursday on the Chicago Board of Exchange to close at $7.86, a jump from $4.50 a month ago when reports began to surface of extreme heat and drought in Russia’s wheat-producing territories. Prices are up 45% this year.
Corn rose by 3.3 cents per bushel Thursday to $4.04. Prices have risen 20% in the last month.
Soybeans rose 2 cents per bushel to $10.55.
U.S. wheat exports are up 36% from last year with the prospects of more sales as the world looks to alternatives to Russian wheat.
Corn exports are up 9% for the year, boosted earlier by the first major sales of U.S. corn to China in almost a decade.
U.S. soybean exports are up 17% this year, surprising analysts who earlier had worried about Brazil’s big harvest this year.
Arlan Suderman, an analyst with Farm Futures magazine, cautioned that the Russian crop shortfall is a regional, not global problem, and over the longer term could be covered by larger wheat crops in Argentina and Australia.
He also said traders are looking warily at next week’s supply-and-demand report from the U.S. Department of Agriculture. Many expect the report to confirm that U.S. corn, soybean and wheat crops will be huge.
High wheat prices are likely to be felt most in places such as the Middle East and Africa, where governments subsidize the cost of food. The impact will be less in developed countries, where the price of products such as bread includes costs besides grain, such as packaging and marketing.
Via USA Today