(Bloomberg)  Wheat extended a rally to the highest price in 23 months as Russia, the world’s third-biggest grower, said it would ban grain exports from Aug. 15 because of the country’s worst drought in at least a half century.

A ban would be “appropriate” to stop domestic prices rising, Russian Prime Minister Vladimir Putin told a government meeting in Moscow today. Putin’s spokesman Dmitry Peskov later said a temporary ban would start Aug. 15.

Wheat for December delivery, the contract with the largest open interest, advanced as much as 7.9 percent to $8.155 a bushel in Chicago today, the highest level since August 2008.

The contract was 7.8 percent higher at $8.1425 as of 6:46 a.m. local time. Wheat surged 91 percent since trading as low as $4.255 on June 9.

“Wheat prices may continue rising till the end of August,” said Chris Yoo, manager of the global derivatives team at Samsung Futures Inc. in Seoul. “Consumers are likely to switch to consume rice.”

A heat wave in Russia, dry weather in Kazakhstan, Ukraine and the European Union and excess rain in Canada are draining wheat stockpiles and dragging up prices of rice, soybeans and corn. Wheat has jumped faster than in the first two months of 2008 when a 41 percent gain to a record $13.495 spurred concern over a global food crisis and sparked riots from Haiti to Egypt.

Australia Demand

Demand for supplies from Australia, the fourth-largest exporter, may gain, said Tom Puddy, wheat-marketing manager for Perth based CBH’s export division. “With the prices rallying so much now, a lot of the users are sort of in shock,” Puddy said. Shares of Australian exporters jumped.

Food costs advanced to records in 2008, led by rice, as some exporters curbed shipments amid a shortage. United Nations Secretary-General Ban Ki-Moon warned last year the food-price rises of 2008 will be repeated unless governments act. Concern that lower-than-expected wheat output may contribute to a food crisis are “unwarranted at this stage,” according to the United Nations Food and Agriculture Organization. While the agency cut its estimate for the global harvest to 651 million tons from 676 million, worldwide ending stockpiles may be 188 million tons in 2010-2011, higher than the level in 2008-2009, according to a statement yesterday.

Surging wheat costs may increase food inflation as they filter through to consumers, challenging central bankers to restrain price growth even as they attempt to sustain the global economic recovery.

‘Little They Can Do’

Higher prices may complicate “policy making for central banks since there is little they can do on the monetary-policy side as it won’t affect the price of commodities,” said David Cohen, an economist at Action Economics in Singapore. “They don’t want to get behind the inflation curve, but at the same time they won’t get overly concerned because of weather-related swings in food prices.”
 
India has raised interest rates four times this year to tame prices. Central bank Governor Duvvuri Subbarao last year said monetary policy is an “ineffective instrument” to curb prices. Inflation in Indonesia last month breached the top of the central bank’s target of 6 percent on higher food prices, the same component that UBS AG yesterday said probably pushed China’s rate above 3 percent in July.

“We’re not terribly concerned” about higher wheat prices, said Frederic Neumann, senior Asia economist at HSBC Holdings Plc. “Rice is the major staple in Asia, not wheat.”

Rice Advances

Rough-rice futures in Chicago traded at $11.255 per 100 pounds at 3:28 p.m. in Singapore today, compared with $9.685 at the end of June and $25.07 at the height of the food crisis in 2008. Rice futures lost their premium to wheat on July 15 for the first time since March 2008, according to Bloomberg data.

Asia’s biggest wheat buyers -- Indonesia, Japan, South Korea, the Philippines, Afghanistan and Vietnam -- were forecast to import 22.8 million tons in the year from July 1, representing 17 percent of global trade, according to the U.S. Department of Agriculture.

World wheat stockpiles may decline 2.5 percent to 192 million tons by June 2011 as dry weather hurts the outlook for crops in Russia, Kazakhstan, Ukraine and the European Union, the International Grains Council said on July 29, reversing a forecast for higher inventories.

“As long as prices are moving up, investors simply buy,” Tetsu Emori, a commodity fund manager at Astmax Co. Ltd., said from Tokyo. “There is enough inventory.”

Heat Wave

Wheat output in Russia, the third-largest shipper in the 2009-2010 season, may drop 19 percent to 50 million tons this year, the USDA said in a report Aug. 2. The nation’s exports may decline 23 percent to 14 million tons, the department’s Foreign Agricultural Service said.

Temperatures in most of central Russia will be 8 degrees Celsius above average through Aug. 12, rising as high as 42 degrees Celsius (108 degrees Fahrenheit), according to the state weather service.

In Australia, AWB Ltd. gained 5 percent to A$1.06 and GrainCorp Ltd. rallied 4.2 percent to A$6.17 on the Australian stock exchange. GrainCorp on July 30 agreed to buy AWB to become the nation’s largest wheat shipper.

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