It's All Kicking Off Again I See

London wheat is up sharply, with front month November setting a fresh 13 month high of GBP139/tonne, and November Paris wheat hitting a new two year high of EUR187.75/tonne.

Speculation that Russia's harvest is going to be so bad that exports will be at best slashed, and at worst banned entirely, seems to have got the funds all excited again this morning.

Up to now the government are playing things down, insisting that they will not need to introduce and export ban, and that national reserves are adequate to meet consumption this year.

The average Muscovite, their heads addled with vodka and partially fried by the hottest July temperatures on record, are worried about food price inflation.

A report on Bloomberg suggests that grain prices "may double this year because of the drought, according to the Grain Producers’ Union."

They quote on expert as saying inflation may hit 8.1% by the end of the year, against a government forecast of 6%.

Having had a vested interest in deliberately understating the size of their domestic crops for the past couple of years, it seems that the government have had good reason to overstate production numbers this time round.

It wasn't that long ago that they were confidently forecasting a grain crop in excess of 100 MMT. SovEcon yesterday suggested that in reality it could fall below 70 MMT. That's the entire exportable surplus wiped out, leaving "just" last season's carryover stocks of, allegedly, 24 MMT in reserve.

My spies tell me that 4 MMT of that probably doesn't really exist, and these are good reliable spies. So that leaves us 20 MMT, of which roughly half is in intervention, 3 MMT of which has already been pledged to be sold off cheap to the drought-hit areas.

That leaves around 10 MMT of "free" stocks and 7MMT of intervention. Much of the latter having been bought at even higher levels than where we are today. I'd suggest that they won't want to sell these as a) they will lose money and b) they need to keep some sort of reserves for the winter, the 3 MMT already pledged may not be the end of it.

Potentially that still leaves 10 MMT of "free" stocks to export in reasonable safety, without sailing too close to the wind. Although that's less than half of what they exported in 2010/11, it's a lot more than the total embargo that the market is currently starting to price in.