miles and miles of Washington wheat
Last week I reported on the dramatic rise in wheat prices and suggested that this may be a sign of another food crisis. The rise in price was driven by bad weather and fires in Russia, which is a global player in wheat exports. Russia reacted to the predicted shortfall by imposing export bans on grains. This signaled to markets a reduction in supply, with no change in demand, and prices rose. Speculators moved in and drove the price up further.
Now it looks like things are swinging the other way. Since that post, wheat prices have “tumbled”, largely in response to new information about the global supply of wheat (including larger than expected US harvests) and the belief that farmers will react to the “shortfall” by increasing production.
This latter point highlights a central tension in global food markets. Limited supply and high prices can generate human suffering in the short term but lead to increased production in the long term.
Grain markets are predicted to remain uncertain for some time as traders try to get a handle on the global wheat supply but given information on the current supply it looks like speculators will ease up, and prices will come down.
Posted by Craig Hadley