Russia's decision to ban wheat exports for the rest of the year sent prices for the grain soaring Thursday to the highest level in two years.
The rally in wheat also helped drive up prices for corn, oats and soybeans. That's good news for U.S. farmers, whose wheat will help make up some of the shortfall in exports from Russia and other countries with damaged crops such as Ukraine, Kazakhstan and Canada.
"The American farmer is walking into a gold mine because America is one of the few countries in the world that grew a good wheat, corn, and soybean crop. We have a ton in storage," said Tom Grisafi, who trades commodities on the Chicago Board of Trade.
The sharp rise in commodity prices this summer also makes it more likely that U.S. shoppers will have to pay a bit more for bread, cereal or pasta in the next two to six months, said Ephraim Leibtag, an economist with the U.S. Department of Agriculture.
Russia, one of the world's biggest grain exporters, said Thursday that it was cutting off wheat exports from Aug. 15 to Dec. 31 because a severe drought this summer has already destroyed one-fifth of the country's crop. It will also ban exports of wheat flour, barley, rye and corn. Prime Minister Vladimir Putin said whether the ban was extended into 2011 would be decided after the harvest.
Wheat prices have risen more than 80 percent since early June and notched their biggest monthly gain in July in at least 51 years. Prices for September delivery shot up 60 cents, or 8.3 percent, to $7.8575 a bushel Thursday, the maximum one-day jump allowed. December wheat jumped 55.75 cents, or 7.4 percent, to $8.1125 a bushel.
CBOT rules say that contract prices can rise up to 60 cents in one day. That limit is expanded to 90 cents the day following a maximum rise.
Other grains also rose. Corn for September delivery gained 3.25 cents to $4.035 a bushel, while December corn added 3 cents to $4.18 a bushel. November soybeans gained 4.75 cents to $10.29 a bushel.
Food manufacturers generally have hedges in place that have allow them to buy grain at prices lower than current futures contracts, said Tom Graves, a food industry analyst with Standard & Poor's Equity Research. If the rally lasts for another quarter or into next year, however, he said companies would likely begin to pass higher costs to consumers. General Mills declined to comment on its pricing strategy or hedges.
Despite wheat's huge rally since early June, it's still a far cry from the 2007-08 run-up. Bad weather and demand for biofuels sent grains to record prices in summer 2008, sparking food crises in developing countries.
The U.N.'s Food and Agriculture Organization on Wednesday cut its wheat production forecast Wednesday by nearly 4 percent to 651 million metric tons, but said fears of another food crisis were "not justified at this point" because of existing large global stockpiles of wheat.
In other commodity trading Thursday, energy prices fell while metals were mixed.
Natural gas for September delivery fell 13.9 cents, or 2.9 percent, to $4.598 per 1,000 cubic feet in trading on the New York Mercantile Exchange. September crude dropped 46 cents to $82.01 a barrel, and heating oil lost 1.54 cents to $2.1868 a gallon.
December gold edged up $3.40 to $1,199.30 an ounce, while September silver added 4.3 cents to $18.321 an ounce. September copper dropped 5.1 cents to $3.3535 a pound.
