There is widespread concern over the effects the USDA’s WASDE report may have when it is released on Friday (9th November), as shortages of wheat in major growing regions have led to spiralling prices in commodity markets.

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Russia's miller's union this week announced that it has asked the government to ease conditions for importing wheat from Kazakhstan and rye from Germany, the EU’s largest producer. The imports will cover a shortage caused by drought, which has all but wiped out Russia’s exportable surplus. The Russian region of Siberia has seen its lowest yields since the 1960, when a similar crop failure decimated yields.

Extreme heat and drought conditions in the world’s major wheat producers sent world grain prices soaring earlier this year. Wheat yields are expected to be down in Northern and Southern hemisphere growing regions this season, as increases in production from smaller growers cannot absorb the shock caused by failures in Russia and the Ukraine as well as reduced yields in the EU, Australia and the US.

This means production is set to fall below consumption in 2012-13, with current estimates putting production at 661million tonnes against demand for 688 mi tonnes, according to the UN Food and Agriculture Association. Maize consumption is also forecast to surpass demand this year.

Wheat prices may continue to rise, having fallen off slightly since September, as shortages become more apparent now harvesting has begun in the Southern Hemisphere. This is despite the fact that prices have not fallen so far from the all-time highs reached in August, and sparked by panic over drought in the United States.

Feed wheat reached a record high in London on Thursday (8th November), rising to £221.75/ tonne.

The maize crop in the US has also been severely hit by drought, though projections ahead of the 9th November USDA WASDE report suggest both maize and soy may be revised upwards. Maize and soy prices rose dramatically over the summer, though prices have also begun to ease since September. Nevertheless, livestock farmers are expected to replace expensive maize and soy-based feeds with wheat this season, which will add further pressure to wheat prices.

Although dry conditions in the United States and challenging start to sowing in Europe have also served to spark worried speculation about next season’s crop prospects, improved conditions in South America have provided some hope for sowing there. Nevertheless, rains which Australian farmers had hoped for earlier in the season to boost grainfill have now begun to fall, causing concern over quality and harvest progress.

As the situation in global grain markets remains tense, the UN FAO revealed on Thursday that the prospect of a food crisis, such as that last seen in 2008 which led to revolts destabilising governments in several global regions, remains worryingly real. FAO director General Jose Graziano da Silva commented on the release of the FAO's October Food Price Index, "Droughts or floods are not what causes crises, it's lack of governance. In a globalized world, we cannot have food security in only one country or in one region. We need to strengthen the global governance of food security."

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