Ruble Crisis Ripples Through Wheat as Bulls Advance: Commodities

The ruble crisis is rippling through the global wheat market.

As Russia’s currency extended a plunge to a record low against the dollar last week, the nation slowed grain shipments to preserve stockpiles and keep domestic prices in check. Russia is the fourth-largest exporter and the measures spurred hedge funds to triple their bets on higher prices.

Futures jumped to the highest since May last week after an exporters’ association said Russia denied certificates that grain sellers and buyers need. President Vladimir Putin warned Dec. 18 that the economic crisis could drag on for two years, at a time when cold is threatening winter crops in the U.S., the biggest grain shipper.

“If the Russian export ban were any tighter, that would be constructive, because you have to buy wheat from farmers somewhere else,” Gillian Rutherford, who helps oversee $20 billion as a commodities-portfolio manager at Pacific Investment Management Co. in Newport Beach, California, said by phone Dec. 18. “If we were to have problems coming out of winter crops in the U.S., that would also be problematic.”

Wheat for March delivery climbed 4.2 percent last week to $6.3225 a bushel on the Chicago Board of Trade, a fourth consecutive gain. The Bloomberg Commodity Index of 22 raw materials dropped 1.9 percent as the MSCI All-Country World Index of equities gained 2.3 percent. The Bloomberg Dollar Spot Index rose 0.9 percent. Wheat fell 0.5 percent to $6.29 at 1:29 p.m. in Singapore today.

Short Wagers

The net-long position in wheat jumped to 15,294 futures and options by Dec. 16, according to U.S. Commodity Futures Trading Commission data published three days later. That compares with 4,652 a week earlier. Investors cut their short wagers for 12 weeks, the longest streak since the data begins in 2006.

Russian bread prices jumped as much as 10 percent in the month through Dec. 11, according to retailers. The nation’s food inflation accelerated to 13 percent in November, led by a 54 percent gain for buckwheat and a 34 percent increase in tomatoes, government data show.

The country is denying certificates for grain destined for countries other than Egypt, Turkey, India and Armenia, according to a letter from the National Association of Exporters of Agriculture Products.

American Supplies

The association, whose members represent 50 percent to 70 percent of Russia’s grain exports, stopped purchases for shipments abroad and called for other suppliers to back its decision for a halt until the domestic market stabilizes, it said in a statement Dec. 19.

The strengthening dollar is making American exports less attractive and could stem the rally for Chicago futures, said Shonda Warner, the managing partner of Chess Ag Full Harvest Partners in Clarksdale, Mississippi, which oversees about $150 million. The Bloomberg Dollar Spot Index climbed to a five-year high last week.

Rising production outside of Russia could also curb the rally. The world crop is forecast at a record 722.18 million metric tons by the U.S. Department of Agriculture.

“There’s a lot of grain in storage and on farms, and everyone is using the rally to sell it,” Warner said by phone Dec. 19. “The lid is going to stay on the entire complex for the next year or two, unless we have some sort of huge weather event.”

A drought in 2010 slashed Russia’s harvest and spurred the nation to ban shipments. Prices surged 47 percent that year.

Gold Cut

Net-bullish holdings across 18 U.S.-traded commodities rose 1.1 percent to 816,719 contracts as of Dec. 16, CFTC data show. Investors increased wagers on crude oil and corn and got less bearish in copper.

The net-long position in gold slid 0.8 percent, the first decline in five weeks. Futures dropped 2.2 percent to $1,196 an ounce last week.

Gains for the dollar and U.S. equities have reduced the appeal of bullion as an alternative asset. Federal Reserve policy makers signaled last week that they’re on course to raise interest rates as the economy gains momentum, cutting demand for precious metals as a store of value.

“The economic data continues to pick up and gain the kind of traction we’ve seen, particularly with regard to employment,” Quincy Krosby, a market strategist at Prudential Financial based in Newark, New Jersey, which oversees $1 trillion in assets, said by phone Dec. 18. “Better employment and rising wages would be bearish for gold.”

Source: Bloomberg