Jessey Sahdra is the co-owner of the Bagel House, a bakery with three locations in Toronto that specialize in hand-rolled, honey-boiled, Montreal-style bagels.

Farmers bring in the harvest in Russia. The Russian government has banned grain exports due to a severe drought that has reduced this year's estimated harvest by a third. (Ivan Sekretarev/Associated Press)

Sahdra says business is good but with the price of wheat escalating he is starting to worry. In the past three weeks, the cost of a 40-kilogram bag of flour has gone up by $3, a loss that he has decided to sustain in profit rather than pushing up prices.

"It's hard, I increased the price when HST hit, and then price of flour went up," Sahdra said. "Business is the same but now I am suffering."

The impact of wheat prices is being felt all over the globe, to varying extremes.

In Mozambique, a 30 per cent rise in bread prices triggered riots on Wednesday and Thursday, killing seven people and wounding another 288. Police opened fire on demonstrators after thousands turned out to protest against the price hikes, burning tires and looting food warehouses. Officials estimate the damage at $3 million US, the Financial Times reported Friday.

When Russia announced Thursday an extension to its grain export ban by another 12 months, December futures shot up 9.5 cents a bushel to $7.23, nearing August highs that saw futures above $8.

As the grain markets continue to roil and commodity traders rally, the world watches with trepidation as food prices climb to their highest level in two years, sparking concerns of a repeat of the 2007-08 food shortage.

Yet the forecast for world cereal production in 2010 — even with its lowered yield from wildfires in the Black Sea region, drought in Australia and floods in Canadian Prairie provinces, is still expected to be the third highest on record at 644 million tons — down 33 million from last season's record breaking 677 million.

"Russia temporarily halting exports is a big concern," said Amy Reynolds senior economist with the International Grain Council. "In global terms, however, there isn't really anything to be concerned about … supplies are less than expected [this year] but availability is more than ample."

'In global terms, however, there isn't really anything to be concerned about.'—Economist Amy Reynolds

The IGC estimates that world wheat stocks at the end of 2010-11 will be approximately 184 million tons, a drop of about eight million from July, and mainly due to reduced crop yields from Russia, Kazakhstan and the Ukraine. "These are still at a comfortable level," said Reynolds.

As the world population continues to multiply toward seven billion, the demand for food continues to soar. The IGC forecasts wheat consumption for 2010-11 at a record 657 million.

According to Peter Johnson, a provincial cereal specialist with the Ontario Ministry of Agriculture, Food and Rural Affairs, it's not consumers who are driving prices and nor is it the producers, "the speculators are," he said.

"Net production in Canada is down [so] the perception of production is that it is down in general. Chicago [Board of Trade] is no longer the price discovery mechanism that it should be in the wheat market."

People shop for vegetables at the farmers' market in Berkeley, Calif., in September 2008. Environmental catastrophes have threatened to drive global food prices higher this year. (Eric Risberg/Associated Press)

"Policy is the thing that affects price and price is largely determined in the Chicago futures market," said Alphons Weersink, a professor of agri-environmental policy at the University of Guelph, adding that it should be a good year for many Canadian wheat farmers. "The prices are favourable."

A spokesman for the Canadian Wheat Board said Canadian consumers will hardly "bat an eye" even if the price of wheat doubles.

"An increase in prices can definitely benefit farmers, but it doesn't necessarily translate into higher costs for consumers. We're talking pennies per loaf of bread," said John Lyons.

Not so for the developing world.

In its latest update, the United Nation's Food and Agriculture Organization's Food Price Index averaged 176 points in August, up nearly nine points from July according to its latest update on the global cereals supply and demand situation.

The increase — five per cent — brought the Index up to its highest level since September 2008, still below its peak in June 2008 of 38 per cent but enough to prompt the UN agency to call an emergency meeting to discuss the wheat shortage.

The Food and Agriculture Organization told the Financial Times that "the concern about a possible repeat of the 2007-08 food crisis" had resulted in "an enormous number" of inquiries from member countries. "The purpose of holding this meeting is for exporting and importing countries to engage."

As prices continue their upward trend even a conversation between world traders about increasing world exports may be too little, too late. The IGC has lowered the forecast for global trade in 2010-11 by 3.4 million tons, to 117 million because the price increase has reduced the amount that they expect wheat producers to export, including Canada.

"We generally export everything that is not used domestically but since production is down, we'll likely be exporting less this year," said Lyons.

Ultimately, grain prices are always going to hinge to a certain extent on the vagaries of climate.

"The price rally on the wheat market was really weather driven," said Weersink, noting that better weather next year could mean a better global wheat crop, lower prices and more exports. "This is not going to keep the market at higher levels for too long."