World Grain - December 2008 - 42

WHAT'S NEW?

BestFlours No. 11/08

Kazakhstan, a country with an annual
production of some 18 million tons, is
stopping its exports of wheat grains until
1 September this year.
There are similar trends in South
America, too. With the aim of disconnecting domestic food prices from the
rising international market prices for
agricultural raw materials, the Argentinian government last year imposed
an embargo that now only permits the
export of small amounts of wheat on
a quota basis. Since the state has also
introduced high export duties on cereals
and oil seeds, the incensed Argentinian
farmers have gone on strike (June 2008)
for an indeﬁnite period; this has paralysed all exports of grain.
The cereals market is attracting
speculators
Not least, stock-market transactions are
aggravating the crisis. The shorter supply of raw materials, expanding markets,
the weak US dollar and the search for
new forms of investment are making
wheat a highly desirable commodity
for speculation. According to the World
Trade Bank the price of grain has nearly
tripled in the last three years; more
and more money is ﬁnding its way into
the markets for agricultural products
from sources outside the industry. In
particular, high-risk hedge funds are
discovering raw materials as a chance
for lucrative investment and high yields
- with the result that the international
futures markets are experiencing a
hitherto unknown price volatility. Even
top business experts conﬁrm that it
is sometimes difﬁcult to understand
what is going on in the way of speculation on the stock markets. At the Paris

futures market, for example, the price of
the May position for wheat was ﬁnally
22 percent below the highest level for
the year to date, in mid March; at the
Chicago stock exchange the prices have
since fallen by as much as 29 percent.
According to many traders the fact that
the wheat price is falling again after its
record-breaking run over several months
is largely due to the extremely positive
forecast for the harvest in the business
year 2008/2009.
Invest in acreage and research
In the long term the pressure of demand
can only be relieved by enlarging the
growing areas; potential for this is to
be found mainly in Eastern Europe and
South America. But it is likely to be
years before the necessary investments
in the infrastructure have been made
and storage capacity and logistic facilities have been created there. The EU
has already reacted to the drastically
reduced supply and stopped obligatory
set-aside of arable land. This means
an additional growing area of nearly
2.5 million hectares.
Nutrition experts are also calling for
intensiﬁed research efforts, for example
with the aim of developing droughtresistant wheat varieties that bring good
yields even under difﬁcult weather
conditions.
But it remains to be seen whether efforts
of this kind can lead to a fundamental
turn-about.
The forecasts point in a different direction: "The global competition for vegetable raw materials has only just started",
is the general opinion in the industry.

Further price-boosters:
freight charges, energy, oil
In addition to the prices for agricultural
raw materials, the cost of energy and
transportation has risen sharply. The
price of crude oil (in US $) has increased
4.4-fold since 2004, with direct consequences for downstream products
such as petrol, diesel and kerosene.
The developing countries, especially, are
scarcely able to absorb these costs. They
have a double burden: because of outdated infrastructures the speciﬁc energy
consumption in their own countries, i.e.
the energy intensity, for mobility and
power generation is much higher than
in the industrialized states. Moreover,
75 % of all developing countries are
net importers of food and are therefore
hard-hit by the exploding import costs
for agricultural products.
One typical example of this development
is the freight rate for wheat. For a long
time the ratio of the freight rate to the
price of the raw material was stable. On
the basis of an average purchase price
of 250 $ per ton FOB (free on board),
depending on the place of origin and
the quality, the freight cost was about
30 $/ton, depending on the freight area.
In other words, the cost of transportation accounted for ten percent of the
total purchase price.
But there has recently been a noticeable
increase: the freight prices are currently
around 120 $ at a purchase price of
350 $ and thus make up one-third of
the cost of the raw material.

World Grain - December 2008

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