Russian Drought, Fires Push Up Wheat Prices
MELISSA BLOCK, host:
Here's an equation for you, drought plus wildfires in Russia minus a big stockpile of rotting wheat in India equals opportunity for American farmers and soaring grain prices around the world. Wheat prices are way up, more than 45 percent over the past five weeks.
And to explain how that's playing out around the world, we are joined by Chris Hurt. He's a professor of agricultural economics at Purdue University in Indiana. Welcome to the program.
Professor CHRIS HURT (Agricultural Economics, Purdue University): Well, thank you, Melissa.
BLOCK: And professor, let's talk first about Russia, which has just announced a ban on grain exports because of the drought and wildfires that we mentioned. How will that ripple around the globe?
Mr. HURT: Well, it is very important. Russia is the fourth largest exporter of wheat around the world in the 2009 crop. But more importantly, maybe, is to say that this isn't just Russia, but the Black Sea area. We also have the Ukraine in that area and Kazakhstan, and even some of Western Europe where it has been abnormally warm and dry.
BLOCK: And who would be on the receiving end of that wheat that now may not be getting wheat at all?
Mr. HURT: The ones are really going to be affected: Egypt, Algeria, Nigeria, Morocco and Iraq, so really some of the neighboring countries in Africa and on into Iran.
The other thing that's really difficult for these countries is they have low incomes, generally 5 to 15 percent of incomes of people here in the United States. So when a basic food item like wheat goes up dramatically in price, it really affects their ability to pay for that. And, of course, the pure will-it-be-available question is another one that really makes people very worried.
BLOCK: And you are starting to see headlines now warning of fears of a global food crisis and the question: Could this lead to a repeat of what we saw in 2008 with food riots around the world? What do you think?
Mr. HURT: Well, I think the answer is, at this point, no. And the reasons for that are numerous. First, the world has a better inventory of basic grains and wheat.
Second point is the U.S. farmers have a lot of wheat. In fact, I think they can supply the world with wheat, meeting all of that shortfall. A final thing I will say is we can also respond. We can quickly see acreage come in the Southern Hemisphere - Australia and Argentina and more acreage planted in the United States. So, overall, I don't think we will repeat 2008, but certainly prices are higher.
BLOCK: And for context, if you're to compare the prices of a bushel of wheat then and now, back at the height of the crisis, I think it was $13 a bushel, what about now?
Mr. HURT: That's right, $13. We have seen wheat prices at $8. Chicago Futures traded up to $8.41 on a nearby contract today. So we're dramatically different than that. We had a world booming economy in early '08. Of course, we've been through a recession. We know right now higher prices around the world maybe just can't be afforded given the more meager economy that we have today.
BLOCK: And what would a typical price for a bushel of wheat be?
Mr. HURT: Well, we've been looking at closer to the $5 mark before we saw this shoot up in prices. We'll probably have to pay slightly more for food in the United States, but I don't think that's going to be substantial.
BLOCK: After this escalation in wheat prices that we've been talking about, we did see the prices tumble pretty sharply today with some profit-taking maybe. Do you think we've reached the peak? Have wheat prices gone as high it will go?
Mr. HURT: Well, I think it's really hard to determine. But when you see a market that trades nearly limit up as we did today in the early going, but then you see a reversal and close sharply lower. In this case, they down the limit. It often is a sign that we have put in peak prices.
The reality that will be written over the next several weeks is we see what finally yields actually are.
BLOCK: Okay. Professor Hurt, thanks very much.
Mr. HURT: It's been my pleasure.
BLOCK: Chris Hurt teaches agricultural economics at Purdue University in West Lafayette, Indiana.
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