Russian ban aids U.S. agribusiness

CHICAGO — Archer Daniels Midland, Potash Corp. of Saskatchewan and Eagle Bulk Shipping stand to benefit after Russia banned exports of wheat because of its worst drought in 50 years.

ADM, the world's biggest grain processor, can step in to ease the shortage in Russia, Credit Suisse Group said. Fertilizer producers will gain from higher sales of crop nutrients to farmers, said Joe Needham, a vice president at grains processor the Andersons. Cereal producers Kellogg and General Mills may raise prices to pass on higher costs.

"This is good for U.S. farmers and U.S. agribusiness," Needham said. "If you ramp up production, they will have to buy seed, they will use more fertilizer and elevators will handle the grain."

The United States, the world's fourth-biggest grower and largest exporter of wheat, will produce 2.2 billion bushels in the year that started June 1, the Department of Agriculture forecast July 9. That compared with a June estimate of 2.1 billion bushels.

"You have a situation unlike anything that I've seen in the 35 years I've been trading in the grain markets," said Dennis Gartman, an economist and editor of the Gartman Letter. "This is going to be one of the great years for American agriculture probably in history. Let's not mince words here."

"Strength in wheat futures is already spilling over into the other commodity pits," said Mark Gulley, a New York-based analyst with Soleil Securities who covers Potash Corp. "As corn and other crop prices go up, affordability improves, and that's a direct benefit to fertilizer producers."

Wheat prices in Kansas have risen almost $2 a bushel since July 26, beginning just shy of $5 before rising to well over $6 on Thursday. Prices settled back just under $6 on Friday.

Bill Maskus, grain division manager at the Dodge City Co-op, said this summer's run-up has a few similarities to $12 wheat in 2007 and 2008.

"The difference between then and now is you had oil spiking and pulling commodities way up," Maskus said.

"So the money funds were getting in wheat."

It's only the third wheat price spike in Maskus' 35-year career in the industry.

"We had one in the mid-1990s but it was nothing like this," he said. "Before that, you're going back to the Russian grain deal in the early 1970s."

Darrin Unruh, salesman at Hutchinson Co-op, said the wheat prices are unlike anything he's seen in his career.

"This is nuts," he said. "The Russian thing, I'm sure their bushels are down and all that, but it's just speculators driving this if you ask me."

Unruh said the price volatility reminds him of oil prices.

"If you're on the right end of it, it's great," he said.

Eagle Bulk CEO Sophocles Zoullas said in a conference call Thursday that the New York-based shipper is seeing a stronger market for moving grains. Decatur, Ill.-based ADM's shares will rise because of "outsized arbitrage opportunities" in the wheat market, Credit Suisse Group analyst Rob Moskow said in an Aug. 3 note.

"Any industry that touches on grains, especially from a production standpoint, and from an input supply standpoint for instance, are going to benefit," said Kenrick Jordan, chief economist at BMO Financial Group in Toronto. He said Deere Co., the largest farm equipment maker, will gain from the increase in production spurred by the price rally.

U.S. wheat exports may be as much as 4 percent above the 1 billion bushels the USDA forecast for the year that started in June after Russia banned grain exports from Aug. 15 to Dec. 31, said CHS, the country's largest cooperative grain marketer.

Saudi Arabia and Turkey generally buy wheat from Russia and Canada, where production is expected to drop because of wet weather, said Roger Baker, head of CHS's North America wheat-trading desk in St. Paul, Minn. Both countries will now switch to the U.S., increasing the company's exports, he said.

"In order for farmers to capitalize, another farmer has to take a loss," said Ron Suppes, a farmer who grows wheat on 3,000 acres in Kansas. "It's a sad situation."

The European Union is the world's largest wheat producer, followed by China and India.

"If there is a poor wheat crop, the world will have to come back to the U.S. for wheat exports" as it did in 2007 and 2008, Steven R. Mills, ADM's chief financial officer, said in a conference call Tuesday.

Still, the rally in wheat prices will be limited as farmers globally likely will ramp up production, Needham said.

"It's the only crop in the world that's planted somewhere in world every day and a new crop is harvested somewhere in the world every day," Needham said. "In wheat, it's generally a temporary shortfall."