Wheat prices soared limit up on US exchanges, and posted double-digit gains in Europe, after Russia banned exports of the grain, closing off shipments from the crop's third-biggest exporting country.
The jump in prices also spread to other markets, with corn setting a high for 2010 in Chicago, and ethanol prices soaring 7%.
Russia's president, Vladimir Putin, announced the curb as he unveiled help for the country's farmers, struggling against the worst drought since records began 130 years ago.
"I think it is advisable to introduce a temporary ban on the export from Russia of grain and other agriculture products made from grain," Mr Putin said, terming the move "expedient" to keeping domestic prices low and maintaining cattle numbers.
The restriction, which covers barley, corn, flour, rye and wheat, will stretch form August 15 to December 31. Russia also asked that it be extended to Belarus and Kazakhstan, partners in a customs union.
Kazakhstan, also a grain exporter, which is forecasting a 35% fall in grain production, said the matter would be considered at a customs union meeting due in two weeks' time.
'Almost total failure'
Russia's announcement sent Chicago wheat for September up 8.3% to $7.65 ¾ a bushel, the maximum rise allowed by the exchange, with the grain going limit up in Kansas and Minneapolis too, before retreating a little way from peaks.
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Thursday's closing wheat prices
Chicago: $7.85 ¾ a bushel, +8.3%
Kansas: $7.80 a bushel, +7.4%
London: £158.00 a tonne, +4.3%
Minneapolis: $7.83 a bushel, +7.0%
Paris: E223.50 a tonne, +6.8%
Prices for US exchanges' September lots, and November lots in London and Paris |
In Europe, Paris wheat for November jumped 12.9% at one point to E236.00 a tonne, while its London peer soared 11.6% to £155.00 a tonne. Both prices were two years highs.
And prices may move higher yet, given that Russia's move had removed a "big chunk" of export supplies from the market, and with a "weather market feeling" setting in, Alex Bos at Macquarie Securities said.
"It feels like things are going from bad to worse [in Russia]," he told Agrimoney.com.
"We are facing almost the total failure of the spring crop in most regions of Russia."
Spring wheat accounts for about 40% of the country's total production.
Blow off?
However, not all observers agreed with expectations of rising prices, with AgResource saying the implementation of the long-waited ban could act as a trigger point for sales.
US Commodities said that such an "inflammatory" development as an export ban "often allows for a blow off.
However, the American broker added that the restrictions may not mark the end of the run of bullish stories on wheat, with fears growing for dry weather in Argentina and Australia, where farm officials on Thursday warned over that "significant" areas faced below-average yields, even if rains arrive as meteorologists expect.
"The market will not relax until more is known," US Commodities said.
Order threat
Moscow's August 15 covers contracts already struck, market sources told Agrimoney.com, placing Egypt's last three orders from Russia, totalling 480,000 tonnes, in jeopardy.
However, Egypt's state grain trader, the General Authority for Supply Commodities, said it hoped that Russia would honour its contracts, the last of which was sealed on Wednesday.
The authority said it would not retender in one batch for the full quantity of any lost imports, but would seek to purchase 60,000 tonnes a month, adding that it had four months' supply already secured.
Separately, Black Earth Farming, the Russian farm operator, unveiled barley yields of less than half those last year, thanks to the "severe weather conditions", with yields of both spring and winter barley down by one-third.
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