THE price of many basic foodstuffs, already more expensive than a year ago, could soon take off after the world price of wheat broke through $US10 a bushel for the first time yesterday amid concerns about another poor crop next year.
Chicago wheat futures jumped to a record $US10.095 a bushel as dry weather threatened crops in Argentina, heightening worries that farmers might fail to supply enough to meet rising demand. The price has more than doubled in the past year.
"The world is very short of wheat this year," said Commonwealth Bank commodity strategist Tobin Gorey.
Industry analysts warn that the continued increase in wheat means the price of staples such as beef, chicken, eggs, bread and milk could surge as producers find it increasingly difficult to absorb the increased costs.
Global food giant Sara Lee warned last week that it was reaching the limit of its ability to squeeze its operating margins as it announced the second increase in US bread prices in three months and declared it could no longer absorb higher wholesale meat prices.
Producers have also been insulated to a degree by using contracts and the futures markets to lock in wheat prices from earlier this year but many will have to strike new deals next financial year at higher prices.
Australian Farm Institute executive director Mick Keogh said the retail price of poultry meat in Australia had increased by 10-25 per cent in the past six months, driven largely by the higher cost of animal feed grain, including wheat.
Feed grains have increased in price by up to 100 per cent over the past year and a half.
Bread prices are also rising, although wheat makes up only about 10c of the retail price of a loaf. "Consumers should get used to rising food prices," Mr Keogh said.
Rising demand for wheat is being driven by increased consumption, particularly from an increasingly Westernised Asia, and increased demand for grain for the biofuels industry.
At the same time, supply is being squeezed by drought and competition for agricultural land between wheat and other grains.
The price of soybeans rose to the highest in 34 years yesterday, while corn jumped to a nine-month high.
Rabobank senior analyst Ingrid Richardson said world wheat stocks were at their lowest level in 30 years.
Higher wheat costs are also stoking inflation and making it more difficult for the Reserve Bank and other central banks to lower interest rates. Food prices make up about 16 per cent of the Consumer Price Index.
