Don’t worry about wheat prices: Look at grain stocks

29-Aug-2010 - Last updated on 30-Aug-2010 at 11:06 GMT

There’s nothing like a shortage of wheat to send some news media searching for superlatives. Talk of “soaring” wheat prices and “rocketing” bread prices were common, in the British press, after Russia decided to temporarily ban grain exports earlier this month. Three weeks later what lessons can we lean?

Scything through the hype reveals two points. First, grain stocks can moderate short-term supply worries about wheat and the price of flour and related food prices.

Second, the toxic effect of food price speculation and the pressing need to remedy it.

What the headline writers and those who predicted a return to the global food crisis of 2008 failed to consider, or chose to ignore, are the key differences between then and now; particularly larger grain stocks.

Higher production costs

In 2008, all grain prices rose simultaneously and the price of oil was more than $100 a barrel - sparking fears of higher production costs. But this month, it has been mostly wheat that increased in price. Plus, the price of oil has fallen to just over $70 a barrel.

But perhaps the biggest difference is grain stocks. Two years ago global wheat exports fell to 124m tonnes or the equivalent of 10.5 weeks’ consumption. Earlier this month the US Department of Agriculture (USDA) estimated global wheat stocks at 187m tonnes or 15.4 weeks’ cover.

The latest estimate from the International Grains Council is even more encouraging.

While reducing its estimate of global wheat production by 7m tonnes to 644m tonnes, due to adverse weather in Russia, Ukraine and Kazakhstan, it puts grain stocks at 184m tonnes. Although that figure is down 8m tonnes on last month’s estimate, it is still 16m tonnes higher than the end of 2008/09.

So, with world grain stocks in good health, the Russia export ban, due to end in December, looks a good deal less scary than some pundits suggested.

Meanwhile, the wheat crisis that wasn’t really a crisis also highlighted the corrosive effects of food price speculation.

At the beginning of this month, the European Flour Milling Association highlighted the role of food price speculators, not the Russian export ban, in driving wheat prices up.

Laurent Reverdy, the association’s secretary-general told BakeryandSnacks.com: “We consider that this situation requires a significant reaction of public authorities to fight artificial and detrimental food price volatility induced by market speculation. We are convinced that European coordinated measures by public authorities are necessary to provide a clear signal to all operators on the futures commodity markets.”

Whole cereals chain

Of course, the Russian export ban was always bound to make wheat markets volatile. But the toxic activity of food prices speculators made a bad situation much worse.

Reverdy’s comments to us were blunt: “The rise in cereal prices is (being)………fuelled by statements of speculators exaggerating the current uncertainty over harvest prospects in regions hit by adverse weather conditions. This leads to increased volatility and affects the whole cereals chain.”

EU's internal market commissioner, Michel Barnier was even more outspoken in condemning food price speculation last year. “Speculation in basic foodstuffs is a scandal when there are a billion starving people in the world. We must ensure markets contribute to sustainable growth. I am fighting for a fairer world and I want Europe to take the lead on that.”

So what is the EU waiting for? Surely, not more evidence? Now is the time to take decisive action on food price speculation.

Let the media save its superlatives for the sports industry. Food prices and their media coverage need and deserve more stability.