Speculators get a taste for grains

• The boom in the price of wheat due to the drought in the former Soviet area makes speculators happy

• Romanian producers seize the opportunity to increase their profits • After domestically produced wheat has been exported for a high price abroad, the domestic market could be disturbed by cheap imports

The severe drought in the steppes of Russia and Kazakhstan caused the wheat production of the two countries to decrease by about 9 million tons.

Due to the state of things in the former Soviet area, the world"s wheat production, estimated at 661 million tons, was revised downwards compared to the previous month, by 7.4 million tons, and by 18.8 million tons compared to the output of 2009.

Under these circumstances, the price of grain on the international markets boomed, giving hedge funds and players in the sector the opportunity of making tens of millions of Euros in profits in just a few days.

• Price went up 10% in just four days

On the Chicago Mercantile Exchange, where wheat is traded, the price of the ton of wheat rose about 20 dollars between July 5th and July 9th, from 207.3 dollars/ton, to 224.7 dollars/ ton. Major fluctuations also occurred on the Kansas City Board of Trade, where, in the same period, the ton of wheat gained 16.9 dollars.

In Paris, over the same period, the price of the ton of wheat increased by 6 Euros, from 167.9 Euros/ton, to 172.3 Euros/ton.

Basically the profit from the sale of 100 tons of wheat over the course of four days would have amounted to 2000 dollars.

Amid this instability, in the US alone, 514,000 tons of wheat were sold in the US alone between June 25th - July 1st. The amount of wheat exported by the US was 557,000 tons, with the main importers being Nigeria (127,000 tons) and South Korea (112,000 tons).

• The explanation

Dan Botanoiu, the executive manager of the Romanian National Federation of Agricultural Producers explained: "The price of wheat rose on the international markets due to the news about the drought in Russia and Kazakhstan. For instance, in Russia, one of the largest players on the international markets, by some estimates. the drought caused the output of wheat to drop by 9 million tons due to the drought, which caused Russia to lower its exports. The price of wheat is also influenced by speculators that buy full lots which they sell a few days later. Their interest in wheat and corn comes as metals are seeing increased fluctuations. Last but not least, it needs to be said that the EU has low inventories of grains compared to other years and can not intervene to affect the market price to a substantial degree".

• Romanian producers aren"t sitting on their hands either

Romanian grain producers did not just sit by and watch the events unfurl, as Romania"s grain output could drop significantly according to some estimates, after the heavy rains and the recent floods that they caused. According to some forecasts, this year"s wheat production could reach 3.6-4 million tons, with a yield per hectare of 2-2.2 tons, whereas in 2009 it stood at 5.1 million tons, with a yield per hectare of 2.3 tons.

The FOB price in Constanţa for bakery wheat was approximately 116 Euros/ton, and the price of wheat feed was 86 euros/ton, which is a good opportunity for exporters, as, on the domestic market, there are areas where the ton of wheat sells for less than 85 Euros.

"If the Euro were to drop against the dollar, Romanian producers might be tempted to export the wheat now, as prices in the Black Sea area are quoted in dollars. We are exporting wheat feed because it is available", said Dan Botanoiu.

Besides the dollar is rising slightly against the Euro, as on Thursday, the European currency was quoted at 3.30 lei, and the European currency was quoted at 4.26 lei.

• The domestic market could become imbalanced

Some experts say that all of the factors mentioned above could have a negative effect on the price of wheat in Romania, as producers could decide to export their inventories, to take advantage of the current rise in prices, and choose to import cheaper wheat, thus making profits of tens of millions of Euros, as domestic prices are expected to grow.

The Minister of Agriculture, Mihai Dumitru, said the following for BURSA: "I think farmers are always happy when grain prices go up. There is a possibility they could choose to export their grains now and import grain later. I think the fact that prices on the international markets are rising during the harvest period is a good thing".

When asked if these factors could have a negative impact on the domestic market, Mihail Dumitru said: "When it comes to this negative impact, we are discussing two different things. When discussing the prices of farming products, farmers will always be happy when prices of agricultural commodities are rising, because this helps their income grow, and the effect that this rise would have on foodstuffs which is a different matter. The Ministry of Agriculture is usually only responsible for the price of agricultural products, anything else is beyond its competence".

Due to the floods and the rains that ensued, grain production has decreased significantly, but Romanian farmers found an opportunity to cut their losses by using the situation on the international markets, which have seen grain prices go up after the drought of Russia and Kazakhstan. Farmers have the opportunity to export wheat, even feed wheat, at high prices, and make quick profits, but this poses the risk of cheaper imported grains causing an imbalance on the domestic market later.