“I have never seen a situation quite like this…” That is how even the most experienced professional describes the recent hyperactivity in global wheat markets associated with crop problems in Russia.

No wonder. In mid-May, a major international grain analyst group actually increased its wheat production forecast for Black Sea exporting countries. By June 30, however, the deteriorating conditions in Russia lit a fuse under world wheat prices, which gained more in July than in any single month since 1959.

U.S. Wheat Associates (USW) received its first request from financial media for comment about the Russian situation and wheat prices on July 27. Such requests increased steadily, peaking the week after the Russian government announced its grain export ban. Clearly, the price run-up creates concern for many wheat importers, but some of the stories took what we consider flights of fancy.

Articles implying possible world wheat shortages and raising the specter of civil unrest culminated in a story suggesting Russia may need to import grain. A Russian government official quickly refuted that story. Last week, though, a SovEcon spokesman told a conference of traders and corporate analysts that grain imports could reach six million metric tons (MMT), including possibly 1.5 MMT of wheat plus feed barley, rye, maize, and malting barley mainly from neighboring countries, and some rice. Markets reacted to each iteration of this story.

USW believes it is a good time for some rational perspective.                

“The fundamental concern for buyers and sellers is whether or not the rest of the world can fill the gap left after Russia closed its wheat store,” said USW Vice President of Overseas Operations Vince Peterson. “The answer is yes they can this year — with plenty of wheat to spare.”

Peterson noted that USDA originally estimated world wheat trade for 2010/11 at 131 MMT and of that, Russia would account for about 15 million metric tons (MMT) in exports. Before the government-imposed ban, Russia had exported about three MMT, leaving a gap of 12 MMT, or an estimated 16 MMT including shortfalls from Ukraine and Kazakhstan. USDA originally pegged 2010/11 global ending stocks of 191 MMT, now adjusted to 175 MMT. Even after USDA increased its U.S. export forecast to 32.7 MMT, its estimate of U.S. ending stocks now stands at 25.9 MMT, just 600,000 MT below ending stocks in 2009/10. Just this week, Reuters reported that Ukraine has now decided not to officially curb grain exports this year. The article also said, “Ukrainian customs officials continued to enforce de facto export restrictions by blocking grain shipments…on the ground that cargoes had been wrongly labeled…”

“What we are watching now is new crop wheat planting in the Black Sea region and world corn supply and demand,” USW President Alan Tracy said this week to the China Central Television Network, CCTV-9. “If plantings go way down in Russia and global demand for corn grows further, wheat prices could well stay fairly strong until 2011/12 supplies are determined. Of course, Russian farmers who cannot plant wheat this fall may be able to plant more corn or oilseed crops next spring.”

Tracy also told CCTV-9 that while current prices send a signal to the world’s producers to plant more wheat, U.S. hard red winter (HRW), hard red spring (HRS) and soft white (SW) producers are unlikely to increase seedings dramatically. However, he said, because U.S. soft red winter (SRW) planted area was down significantly for 2010/11, higher prices could be a strong incentive for SRW producers to plant more this fall.

Importers can track U.S. wheat export and export basis prices in the USW Price Report, posted every Friday afternoon at http://www.uswheat.org/reports/prices.