by Agrimoney.com
The wheat market revived, as Ukraine trimmed its export forecast amid forecasts of dry weather, while Fitch Ratings added its voice to those expecting prices to stay high despite Russia's return to foreign sales.
Chicago wheat, which fell more than 7% in two trading sessions after Russia unveiled it would next month lift a ban on grain exports, recovered some ground on Thursday, adding 1.0% to $7.67 a bushel, for July delivery, as of 15:45 GMT.
In Paris, November wheat, the best-traded lot, stood 0.5% higher at E237.50 a tonne, with London's November contract up 1.5% at £190.50 a tonne.
'One key serious threat'
The revival came as Ukraine cut to 15m-18m tonnes, from 19m-20m tonnes, its forecast for grain exports in 2011-12, without giving a reason for the downgrade.
"They did not cite whether this decision was based on increased competition [following Russia's move] or lacking crops," US Commodities noted.
However, the downgrade comes amid growing concerns over dryness in the former Soviet Union.
Jaime Nolan at FC Stone's Dublin office termed the "building dry pattern of weather forecast" for the region as "the one key serious threat" to plans to exports.
"The market will watch nervously for developments in this area, with last year fresh in everyone's mind," when a drought devastated Russia's harvest, in particular, forcing the grain export ban from August.
US-based weather service WxRisk.com said that weather models "show Poland east into Belarus and the Ukraine looks warm and dry with no rains over the next seven days".
Levies instead?
Furthermore, there is growing speculation that Russian will impose some fresh measures, such as export levies, to curb the risk of a hike in food prices.
Russia's domestic wheat prices have risen more than 10% since the announcement of a resumption of exports, to close the gap with international prices which have been well over $100 a tonne higher.
Sergei Ignatyev, head of Russia's central bank, which on Tuesday raised interest rates by 0.25 points to 3.5% after inflation hit an 18-month high of 9.7%, said that Russia could, to soften the impact of the resumption of trade "temporarily, say for one year, introduce a mechanism of floating tariffs".
The Russian Grain Union has suggested a tariff on exports price above 7,000 roubles a tonne.
"Trade will note the protestations among some influential institutions in Russia regarding the free-for-all export plan coming in July," Mr Nolan said.
Ukraine, which ditched grain export quotas last month, has imposed duties of 9%, or at least E17 a tonne, on wheat shipments, 12%, or at least E20 a tonne, for corn and for barley a charge of 14%, or at least E23 a tonne.
'Elevated prices'
Separately, Fitch Ratings forecast that Russia's return to international markets was "unlikely to ease agricultural commodity price inflation", warning that this "does not necessarily mean there is be sufficient supply to offset losses in Europe and the US", where weather extremes are threatening crops.
Many analysts are forecasting European Union production losses of 5m-7m tonnes from dry weather, compared with a US Department of Agriculture figure of 138.6m tonnes, with some estimates below 130m tones.
Combined wheat exports from the EU and US were, even before the drought, some 50% more than those from Russia and Ukraine, and accounted for 35-41% of world shipments.
"So any reduction in exportable wheat from [America and Europe] will likely translate into tightened stocks and upward price pressure," Fitch said.
Corn vs wheat
"At the same time, global wheat consumption in 2011-12 is expected to be boosted by the continuing rise in demand for wheat-based foods in developing markets, especially Asia, and by increased use for feed to replace high-priced corn," the credit ratings agency added.
"This is likely to translate into elevated wheat prices for the rest of 2011.
Shorter-term, investors are awaiting the results of a 25,000-tonne Lebanese wheat tender to judge the level of prive competitiveness that Russia poses.
The wheat is scheduled to arrive on July 5, four days after Russia's export ban lapses.
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