Volatile agricultural commodity prices drive hedging activities

Drought in north-east China, combined with floods in Australia, has driven the volatility of wheat prices dramatically higher during the past few months. And wheat is not the only soft commodity whose price volatility is causing problems for market participants.

Severe flooding in Australia late last year reportedly left parts of the country the size of France and Germany combined under water. Meanwhile, droughts in Russia last summer and more recently in the major wheat-growing regions of north-east China, has led to concerns about a global shortfall of high-protein wheat, with wheat prices climbing to their highest level since August 2008 in Chicago and to an all-time record of 3,100 yuan ($471) per tonne on the Zhengzhou Commodity Exchange in China.