Russian fires and drought fuel grain inflation

Russia’s fires and drought have had adverse affects on the agricultural sector. The harvest is now expected to be 65 million tonnes, but could be as low as 60 million tonnes – it was previously predicted to be 75 million tonnes. Because of the pressure on domestic supply President Putin has put a stop to all exports of grain in 2010 and may look to extend this date. This anouncement by Putin pushed up the price of wheat on the Chicago Board of Trade – $7.26 a bushel. Critics of the ban on exports have said that 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. With this ban on Russian exports it is believed that speculators have been artificially driving up the price of wheat for their own advantage. However the forces of supply and demand don’t necessarily support the increase in prices to date.

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