Russia´s ban on grain exports caused a buying frenzy on global grain markets, driving prices up sharply under record high volumes.

But after the initial panic, the price for a bushel of wheat at the Chicago Board of Trade (CBOT) fell by $1.12, or by over 12 percent, after it reached a zenith at $8.40 per bushel. While some media reports highlighted panic among grain importers and a possible repeat of the 2008 food crisis, this scenario is not at all supported by the available data about the world market.

The most recent Grain Market Report by the International Grains Council (IGC) released on July 29 already took into account the severe drought in several regions of the world and even mentioned speculation about export restrictions by Russia and Ukraine. The IGC also noted considerable speculative activity as a cause for the steepest run-up in wheat prices in 38 years -- but that was before the madness really started in the first week of August, with funds and speculators buying up huge amounts of futures and options on grain.

The IGC adjusted its global wheat output forecast to 651 million tons, 13 million tons lower than the previous month's estimate, and 26 million tons less than the output one year earlier. Global consumption of wheat is estimated to be at 655 million tons and thus in perfect balance with production.

Considering the large carryover stocks of around 200 million tons, projected to remain close to an eight-year high after the rich harvests of the past two years, and the fact that large amounts of grain are used to feed livestock and can be easily reduced, there seems to be no potential for a food crisis and not even a sustained rally in grain prices. The harvest of the number one exporter in the world, the United States, is going to be sufficient, and about 30 million tons in reserves are there available as well.

The harvests of two other major exporters, Argentina and Australia, will arrive in December and are thus still subject to weather conditions which until now look normal.

But in the short-term, fear and panic buying could continue to drive prices even higher.

German analyst Thomas Godt writes that funds bought up to 20,000 contracts on the CBOT on Thursday, an unusually high amount. He says that there were buy orders for over 10,000 contracts at a price level of $9 per bushel, so it is well possible that this price could still be reached in the coming days or weeks.

There is also some risk that politicians didn't learn from the mistakes that made the 2008 food crisis more severe, which is interfering in the free market with export bans and rushed buying. This would increasingly block the free exchange of grain stocks from areas with supply to regions with additional demand.

Russia already started making a move towards these problematic policies by enacting the grain export ban on Wednesday.

The spokesman for Prime Minister Vladimir Putin said the ban was effective from August 15, 2010 to December 31 -- and would also apply to already signed contracts for shipment. However, a few days before, Arkady Zlochevsky, president of the Russian Grain Union of producers, spoke out against the looming ban, as it would undermine Russia´s reputation as a reliable supplier.

Russia is suffering the worst heat wave since recordkeeping began 130 years ago. The drought has forced Russia´s Agriculture Ministry to cut its 2010 grain forecast to 70-75 million tons from 90 million tons. The country also requested its trade-union partners Belarus and Kazakhstan to halt grain exports, which could serve as more bullish news for speculators on the soft commodities market.

Food prices are thus going to rise especially for people in poorer countries. Inflation in food prices will be affected, but only slightly, considering that the 80 percent rise in the price of wheat corresponds to about 10 to 15 cents per kilogram.