Wednesday, August 11, 2010

Breaking bread

To the uninitiated, sukhovei sounds like it might be the latest production at the Bolshoi or perhaps a Soviet jet fighter. Traders in Chicago’s grain pits, who have just seen the largest monthly wheat prices surge in nearly 40 years, are learning to pronounce it with dread. The phenomenon – a hot, dry wind akin to an American Dust Bowl storm that blows from central Asia and can devastate the breadbaskets of Russia and Ukraine – could further reduce an already heat-wilted crop. US futures prices topped $7 a bushel on Monday, a two-year high that comes just weeks after a nine-month low, and European prices surged past €200 a tonne.
The Soviet Union featured prominently the last time wheat prices surged so quickly, back in 1972-73. As chronicled in The Great Grain Robbery, the Soviets secretly bought up nearly a third of America’s wheat crop after a disastrous harvest, helping kick off an inflationary period that would soon be greatly worsened by the Arab oil embargo. Since communism’s collapse, the former Soviet Union has transformed itself from agricultural basket case back to breadbasket, producing 15 per cent of the world’s wheat. This understates its importance as it is a far bigger exporter than some larger producers.

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