Tuesday, August 3, 2010

Climate Consequences: Heat 'N' Wheat
Russian Roasting Propels Prices

Aug. 5 Update: The Russian government announced today that it would implement a total ban on grain exports starting August 15. As wheat prices continued rising to a 22-month high, CNBC had a discussion this morning of the implications for the commodity markets. Here's a piece of good news for consumers: Packaging and advertising account for so much of the cost of cereal production that the prices of the finished product won't go up nearly as much as the raw materials. Here's a piece of good news for investors: The food companies will use the increase in ingredient prices to raise prices anyway.

Original post:
Climate has consequences. The unprecedented heat wave and accompanying drought and wildfires in Russia have seriously impacted agriculture; the world's largest supplier of wheat has seen its crop reduced by 15-20%. Russian exports are expected to be slashed by 30% or more. Meanwhile, heavy rain in Canada's wheat-producing areas has also impacted that country's crop. The shortage in production is driving up wheat prices at the highest rate since the 1950s, rising 40% in the past month. In an interview with CNBC, hedge fund founder and commodities investor Jim Rogers predicts that food prices will be rising "much higher" in the near future.

Other commodities are also affected. Excessive heat in the northeastern U.S. has reduced milk production, leading to higher prices for liquid milk and cheese. Milk Class III (hard cheese) has risen in price by 50% in the past year.

CNBC this morning reviewed the current situation and future prospects with a wheat trader and milk trader:

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