Wheat futures surge to highest level since October 2008

Wheat futures rose to their highest level today on the Chicago Mercantile Exchange: prices for September delivery rose to USD 6.775 per bushel (USD 250.93 per mt), the highest level since October 2008, according to Bloomberg. Wheat prices increased by 9.6% over last week, to make wheat the best performing commodity in July. The rally was driven by fears that drought in Russia could lead to a reduction in grain exports. The Russian Grain Union said it expects the wheat harvest to be 45 mln mt this year (down 27% y-o-y) and exports to drop to 17 mln mt (vs. 21.5 mln mt in previous years). Ruslan Patlavskyy: Given the lowered forecast for the wheat harvest in Russia, the world’s fourth largest wheat producer, accounting for ~8% of 2010/11E global output according to the USDA, we see the likelihood of further growth in grain prices as high. We anticipate domestic 1-grade wheat prices to follow the global trend and rise another 15%-20% over the next few weeks to USD 200-210/mt. This should favor all domestic grain producers and Kernel in particular (WSE: KER PW), which accounts for over half of all domestically traded grain company volumes in 2010.