Russian wheat crisis may aid NZ farmers

Russia last week banned grain exports for the rest of the year after a severe drought and wildfires destroyed 20 per cent of its wheat crop.

The price of wheat, which has already jumped 70 per cent on world markets this summer, rallied further on the news.

Russia, which is one of the world's largest exporters of grain, said the ban would run from August 15 through to December 31 and could be extended into next year if necessary.

Philip York, Federated Farmers economics and commerce spokesman, said dairy commodities tended to go up with the price of grain.

A lot of overseas dairy production was based on grain unlike New Zealand which was grass-based, York said.

"If the grain price goes up we can take a huge advantage from it because our costs don't go up at all," he said.

Wayne Gordon, senior economist at Rabobank Australia/New Zealand, said New Zealand dairy farmers would probably become more competitive internationally.

If US dairy farmers tied to grain had to reduce milk output because they could not continue to feed grain it would tighten up supply and lift prices, Gordon said.

"I think personally it's more a story of holding up dairy prices at current levels as opposed to seeing a further rally in dairy prices, unless it persists for some time," Gordon said.

"If we got to this time next year and we were still seeing wheat prices sitting up around that US$8 US$9 a bushel mark, well then that would have a longer-term impact on dairy supply."

However, pork and chicken producers would start to feel the pinch if grain prices were still at high levels as they ran down stocks.

There was an enormous amount of weather risk in the wheat price, while two months ago there was none, he said.

"Once we see speculators get involved in the market we start to see prices overshoot and undershoot and we may indeed be in a position where prices at the moment are not being supported at the current levels purely by fundamentals."

BNZ economist Doug Steel said there could also be an impact on the beef sector.

Corn prices in the US were starting to rise on the back of wheat prices, which could put pressure on beef producers there, Steel said.

"Obviously our grass-feed beef will not face the same cost pressure. That should be a net positive for New Zealand."

The US beef herd was at extremely low levels, with culling reasonably high and farmland being put into cropping, he said.

"If you get a further increase in price you could see that accelerate."

However, it was still a case of wait and see and two months of higher prices was probably not enough to tip farmers into a decision to destock, Steel said.

"It wouldn't have to last much longer at this level ... to start needing to consider that option."

The higher wheat price may mean Americans and Europeans pay slightly more for bread.

The bigger burden will fall on people in the Middle East, Africa and parts of Asia, analysts say.

Russian Prime Minister Vladimir Putin announced the ban, which in addition to wheat and wheat flour, covers barley, rye and corn, at a Cabinet meeting on Thursday, saying it was necessary even though Russia has sufficient reserves.

"We need to prevent a rise in domestic food prices, we need to preserve the number of cattle and build up reserves for next year," he said.

Putin said Russia would decide after the harvest whether to extend the ban into next year.

The majority of the damage to Russia's wheat crop has been caused by the drought, one of the worst in decades as much of the country suffers through the hottest summer since record-keeping began 130 years ago.

But wildfires raging through much of western Russia have spread into farmland and there are fears that more fields will be lost.

Grain reaction:

* Russia has banned wheat exports after drought and wildfire destroyed crops.

* That has caused a spike in the price of grain.

* In the US and Europe where cattle are grain-fed this raises production costs.

* Those costs flow through to commodity prices for beef and dairy.

* NZ cattle are grass-fed so costs don't rise.

- additional reporting AP