Growing wheat scarcity may send prices skyrocketing October 31, 2006
By Tony Dreibus and Jeff Wilson
Chicago - A growing scarcity of wheat may send prices for the world's most planted crop to their highest in the next six months, threatening to spur inflation in China and India and increase costs for food firms.
Reduced production due to droughts in Australia, Ukraine and the US sent wheat skyrocketing 50 percent this year.
Prices might jump 47 percent more to $7.50 (R56) a bushel on Chicago futures markets, matching the 1996 record, said Brent Harris of Pacific Investment Management in California. Michael Lewis at Deutsche Bank in London said grains would outperform all other commodities next year.
Wheat's rally has boosted costs for Kellogg, the largest US cereal producer, and Kraft Foods, the world's second- biggest food maker. Third-quarter expenses for flour at Canada Bread surged 35 percent, the most in a decade. Major economies most affected are China and India, where staples such as bread are a bigger share of consumer spending.
"I expect to see new records being set in the next two to three years because of global shortages,'' said Stephan Wrobel of Diapason Commodities Management in London.
"Agriculture has outperformed energy and metals since September, and I expect that to continue into 2007."
Egypt, the world's biggest wheat importer, bought 180 000 tons for $34.4 million, triple what it had initially sought. A state-run grain trading company in India said it wanted to purchase up to 35 000 tons after buying 6.5 million tons this year.
World inventories would fall 43 percent by June to 119.3 million tons, the lowest since 1982, the US department of agriculture said earlier this month.
Higher wheat prices "will present a hardship for some countries", said Ernie Goss, a professor of economics at Creighton University in Nebraska. "Cereal prices Â… and bread prices will go up. People won't buy that much less of it.
"You end up buying less clothing. Food and [petrol] fit into the same category.'' - Bloomberg
