Chicago wheat futures began to skyrocket in early June, jumping 62 percent and reaching their highest level since September 2008. In Russia, wheat prices increased 70 percent recently. And Europe's wheat prices also rose 8 percent within a short time.

There are many reasons for the spike in international wheat prices, but a major catalyst was Russia's August 5 announcement that it would prohibit the export of grain and grain products from August 15 until December. The ban concerns wheat, barley, rye, corn, wheat flour and wheat-rye flour.

Russia took the step in an attempt to control domestic grain prices and guarantee food and animal feed supplies. Although the policy was based on internal grain demands, especially wheat demand, it drew attention from around the world.

Grain prices

FALLING OUTPUT: A worker carries rice bags at a state granary on August 16 in Quezon, the Philippines. The country's rice output dropped 2.59 percent in the first half of 2010 due to bad weather (XINHUA)

Experts have different opinions about the recent rise in grain prices. But Russia's ban on grain exports was certainly not the only cause. It's not fair to make Russia the lone scapegoat, as any government in the same sort of trouble would have made the same choice. It is understandable for a government to take measures to restrict exports and guarantee domestic price stability. The Russian strategy proved effective, as the country's grain prices soon fell to a stable level.

Russia's ban on wheat exports was only one catalyst for growing international wheat prices. Extreme weather and international speculation are two deeper reasons.

There is no doubt that serious natural disasters throughout the world were the direct cause of international wheat price increases. Natural disasters, caused by extreme weather, had a negative effect on grain production in 2010. Russia, for instance, suffered the most serious drought in decades. A rare, intense heat wave lasted for more than a month and caused hundreds of forest fires that killed more than 50 people. Even Moscow, the country's capital city, was shrouded in thick smoke.

These natural disasters and fires led to heavy losses in agriculture and grain production. This summer, nearly 10.2 million hectares of farmland, about 20 percent of the country's total, had no harvest. According to the Russian Ministry of Agriculture's latest estimates, Russia may harvest a total of 60 million to 65 million tons of grain this year, about 10 million tons less than previous expectations. In 2009, a year with a good harvest, Russia produced 32 million to 37 million tons more than that. The poor harvest soon brought up domestic grain prices.

In addition to Russia, many other wheat-producing countries were hit by extreme weather this year. Pakistan suffered the most severe floods since its independence in 1947. More than 20 million people, one ninth of the country's population, were affected. One quarter of its farmland was flooded, and the most serious damage occurred in the main grain-producing areas.

Australia and Canada, two other major wheat producers, may also face an output reduction due to natural disasters. The former was struck by locusts and drought, while the latter had too much rain this year. Ukraine, Kazakhstan and some EU countries suffered through periods of hot weather as well, and their wheat production also decreased with these droughts. In the meantime, in the U.S. Corn Belt, heat and humidity may adversely affect the growth of corn and other crops.

International speculation is another major reason for high wheat prices. After an increase of 62 percent in recent months, Chicago wheat futures reached their highest point since September 2008 in early August. This was the quickest rise in the last 50 years. European wheat prices also grew 8 percent in the first half of August. These developments made the grain industry a new target for international speculation.

The international market for primary agricultural products, like grain, became increasingly speculative following the outbreak of the U.S. sub-prime mortgage crisis and global speculators vied to cash in on the international grain market. Huge amounts of hot money poured into agricultural product futures trade, causing drastic fluctuations in international grain prices. Some developed countries' efforts to develop bio-fuels with grain may also lead to grain price hikes.