Wheat Shortage May Mean Higher Grocery Bills

Surging wheat prices could lead to higher grocery bills later this year.

ByABC News
August 6, 2010, 12:02 PM

Aug. 6, 2010— -- A summer of relentless heat in Russia could mean higher grocery bills for the rest of the world come autumn.

Wheat prices spiked Thursday after Russian Prime Minister Vladimir Putin issued a ban on exports as that country confronts grain shortages amidst drought and withering crops, a situation made worse by out-of-control wildfires.

The global ripple effect – other countries possibly hoarding food, grain supplies dwindling, commodities prices rising – is likely to impact a range of food companies and livestock farmers.

Meanwhile, in India, the government there is stockpiling wheat so aggressively that much of it is sitting outdoors under tarps and starting to rot, the A.P. reported Friday.

"A worldwide scramble for wheat supply is on," said Phil Flynn, commodities analyst at Chicago-based PFG Best. "Higher costs for wheat and grains may hurt the economic recovery because a few months down the road it means higher costs for everything from bread to cereal to meat as farmers reduce their herds."

Wheat-price-linked futures, which jumped 8 percent Thursday amidst reports of the Russian export ban, have been steadily rising and are now at a two-year high. In only two months the price of wheat has nearly doubled to around $8 a bushel.

"The implementation of any trade barriers [can] exacerbate supply problems," said Mark Klein, a spokesman for Minneapolis-based Cargill, one of the world's largest food producers and distributors. "Such trade barriers further distort wheat markets by making it harder for supplies to move from areas of surplus to areas of deficit, and by preventing price signals from reaching wheat farmers."

Russia exported more 17.5 million metric tons of wheat last year and is the fourth largest exporter of wheat behind the U.S., Europe and Canada. Its ban will commence Aug. 15 and last until the end of the year.

Pointing to similar grain shortages and food price hikes in 2008 that sparked riots in some parts of the world, industry members stressed how this time around the situation may not be as severe.