Scorching heat will keep hammering Russia for the next 10 days, a top weather official said today, and seeding for the winter grain crops is in danger if there is no rain after that.
Russia's worst heatwave on record has stoked wildfires and parched crops in last year's number three global wheat exporter, leading to a grain export ban, sending prices of wheat to two-year highs at one point and prompting the World Bank to warn against hasty restrictions on exports.
Economists said the heatwave could wipe $14 billion off economic growth. The drought could slash Russia's 2010 grain output by nearly 40% to 60 million tonnes, and the winter wheat sowing campaign could begin to be in jeopardy if there is no rain during or right after the next 10 days.
Prime Minister Vladimir Putin, who said Russia's ban on grain exports could extend into next year, noted the drought could prevent some regions from starting the sowing campaign for the 2011 winter grain crop, which normally accounts for roughly 40% of the total.
The majority of Russia's grain crops are not planted until the spring, allowing much more time for conditions to improve.
World Bank President Robert Zoellick today cautioned against countries taking any action that could add to market uncertainty, in particular widespread export bans like Russia's.
'The situation in world grain markets is very uncertain and therefore somewhat volatile,' Zoellick said. 'What is better this time is that the buffer stock is a little higher than a couple of years ago,' he said, referring to tightness in global grains markets in 2008.
'We are cautioning countries about taking actions that might be appealing domestically but could add uncertainty on markets such as bans on exports,' Zoellick said.
The crop failures will hit Russian farmers particularly hard. Only around 25% of Russia's crops are insured, compared with 80% in the US, Swiss Re, the world's second-biggest reinsurer said today.
Meanwhile, wheat markets slid further today from last week's two-year highs, as traders assessed the damage to grains production across the Black Sea region that also includes major grains producer Ukraine, and pointed to ample stocks after two years of good harvests.
Wheat prices on the Chicago Board of Trade traded as low as $6.90 a bushel, around 18% below last week's peak of $8.41, before rebounding to $710-1/4 this evening.
Prices remain far below the peaks set during early 2008 when shrinking inventories and rising energy markets saw CBOT wheat futures rise as high as $13.34-1/2.
The two largest global wheat crops in history in 2008 and 2009 have resulted in much higher stock levels now and a return to the prices seen two years ago is considered unlikely. Still, prices remain more than 50% higher than June lows, and importers are reluctant to commit to deals at current prices.
