At the beginning of the month, wheat prices went up to $8.68 a bushel on August 6, the highest price in almost two years, amidst speculations of massive crop destruction following droughts in Russia, the worlds fourth-largest wheat exporter.
The panic in wheat markets surged to a point where market players feared that a wheat crisis, similar to that observed in early 2008, when wheat prices climbed up to $13 a bushel, was round the corner.
However, these fears were subsided on grounds that bumper crops in the previous few years would not let the situation reach a point of such gravity.
The consequent dip in prices, however, was only short-lived. Adding to the ado, Russia banned wheat exports near the middle of the month, and, as the extent of damage to the Russian wheat crop became clearer, prospects of Russian grain imports loomed ahead.
According to the United States Department of Agriculture (USDA), the Russian crop fell down to 41 million tons, down by 34 percent from the last year. SovEcon, a Moscow-based agriculture consultancy, said Russia might need to import more than 3 million tons of grain in the current crop year, ending June 2011.
As the crop situation became clearer, the International Grains Council revised its global production forecasts downwards to 644 million tons for 2010/11, against expected consumption of 657 million tons.
All these factors have been playing together in preventing the wheat rally from sinking in, with wheat climbing back up to $6.95 a bushel on August 27.
Locally, the situation has not been very smooth either, after the nerve-wrenching floods began a wave of devastation.
Initially, the Pakistan government had not been able to put a number to the extent of damage to wheat in the country, claiming that they would be able to export 2 million tons of the grain despite the damages, thanks to a bumper crop of 23.86 million tons in 2009/10.
Lately, however, the Ministry of Food and Agriculture announced the shelving of export plans to ensure sufficient supplies for the locals, after an estimated loss of 725,000 tons of wheat. However, the existing reserves are adequate, barring the need for any imports.
Given these scenarios, wheat markets are likely to remain tense for the coming days, and more likely the coming year, especially bearing in mind the revised lower production forecasts by the International Grains Council.
Exporters like the US, EU and Australia are likely to be under tremendous pressure as importing countries such as Egypt (the worlds biggest wheat importer) scramble to alternate exporters to prevent wheat shortages in their own country.
The staple grain needs to brace itself for rough times ahead.