Weather forecasts from Russia point to a continuation of the drought
(LONDON) Wheat prices struck two-year highs last week as major exporter Russia banned grain exports after a record drought and fires ravaged its crop.
Markets shook off news that the US economy shed more jobs than expected in July.
Some 131,000 jobs were lost and the unemployment rate remained stuck at 9.5 per cent, the US government said on Friday last week.
The figures were seen as yet another sign that the US economic recovery was stagnating and that the country's employment market may take years to get back on its feet.
Grains and soya: Wheat prices soared in the wake of the decision by Russia - the world's third biggest exporter - to ban exports until the end of 2010.
Wheat futures struck US$7.89 a bushel (about 25 kg) on Friday in Chicago trade - the highest level since late 2008.
'Concerns on the impact of drought on Russian wheat production . . . is dominating market focus,' said Barclays Capital analyst Sudakshina Unnikrishnan.
'Weather forecasts from Russia point to the continuation of drought and the market focus remains on Russian wheat export potential and how lowered supply prospects will feed into global wheat production and trade balances,' she added.
Russia has seen 10 million hectares of arable land destroyed in the heatwave and the government has warned that grain production this year will be lower than annual domestic demand at 70-75 million tonnes.
'It is going to interrupt trade and create instability in the market . . . a situation which was not serious has now become serious,' said Abdolreza Abbassian, economist and secretary of the Intergovernmental Group on Grains at the UN Food and Agricultural Organisation (FAO).
'It was a very quick and unexpected decision,' he told AFP in Rome.
Crucially, the government decree to ban exports also stated that the decision should be matched by its partners in a regional customs union, Belarus and Kazakhstan.
Kazakhstan is a major player on global grain markets and officials in Astana said its position could be made clear this week.
Analysts at Commerzbank said the United States could be a key beneficiary of the crisis.
'The US, in particular, might benefit from this, because it once again had a good wheat harvest and it also has sufficient wheat inventories,' they wrote in a research note.
By Friday on the Chicago Board of Trade, wheat for delivery in September had jumped to US$7.69 a bushel from US$6.61 the previous week.
Maize for December rose to US$4.12 a bushel from US$4.06.
November-dated soyabean meal - used in animal feed - increased to US$10.30 from US$10.05.
Oil: Crude oil prices rose sharply to three-month highs above US$82, with sentiment boosted by soaring global stock markets, strong bank results and solid US economic data at the start of the week.
Traders meanwhile shrugged off downbeat economic news in China, which is the world's second biggest energy-consuming nation after the United States.
'Oil prices ran higher on the expectation that improving economic conditions will bring about energy demand growth,' said Mike Fitzpatrick of MF Global.
But he warned that 'financial markets can clearly run ahead of economic reality, as has been demonstrated time after time'.
By late Friday on the New York Mercantile Exchange, Texas light sweet crude for delivery in September had rallied to US$81.91 a barrel from US$77.67 the previous week.
On London's Intercontinental Exchange, Brent North Sea crude for September jumped to US$81.30 compared with US$77.04.
Precious metals: Prices advanced across the board.
'The entire precious metals complex posted gains . . . as equity markets regained upward momentum, (on) positive macro data and the euro made further gains against the dollar,' said Barclays Capital analyst Suki Cooper.
By late Friday on the London Bullion Market, gold advanced to US$1,207.75 an ounce from US$1,169.
Silver rose to US$18.30 an ounce from US$17.66.
On the London Platinum and Palladium Market, platinum climbed to US$1,571 an ounce from US$1,555.
Palladium increased to US$491 an ounce from US$487. -- AFP
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