Russia?s Wheat Dilemma
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The crash in the exchange rate of the Ruble has created demand for Wheat from Russia. However, the export demand for the grain has also driven up the price of food, including bread, in the country. Given the fact that the Russian economy has been faltering, the last thing the country needs is rapid food inflation. It will be interesting to see how Russia plans to go about limiting exports, given the disastrous results of the 2010 export ban. After Russia disallowed exports in 2010, the price of Wheat more than doubled.
Fundamentals
There have been reports that Russia had denied export licenses for Wheat, supporting the assessment that the government could be curbing exports. This seems to be the method Russia plans to use instead of official embargoes or tariffs. There had been talk that the price that the Russian government is willing to pay for the grain will also increase to encourage farmers to keep supplies within its borders. If the Ruble can stabilize or reverse course, Wheat could find itself under selling pressure.? The velocity in which the Ruble has dropped suggests that there could at least be a short covering bounce in the currency.? The exchange rate of the Ruble, as well as the Russian government?s reaction to Wheat exports, are likely to be the primary driver of Wheat prices.? Outside of Russian concerns, Wheat supply and demand fundamentals are not particularly strong.? This suggests that a potential down move in the grain could be swift and extreme if supportive forces from Russia dissipate.
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