Wheat price soars as world granaries run low Kevin Morrison, London July 22, 2006
A "PERFECT storm" of record northern summer temperatures, low global grain stocks and the expected growth in biofuels has seen wheat prices rise to 10-year highs and may lead to increases in the cost of bread and pasta. Corn and barley prices are also likely to rise, which may in turn push up the cost of beer and breakfast cereals.
The US has had the warmest year on record and Europe has experienced a heatwave that has damaged grain crops at a time when worldwide grain inventories are at relatively low levels.
In Britain, which this week experienced its hottest July day, crops have matured now, forcing some wheat farmers to start harvesting in mid-July, a month earlier than normal - the earliest UK wheat harvest since the 1976 heatwave.
The UK barley crop is also affected by the heat and in turn is expected to push up the price of malt, a key ingredient for beer. The Italian farmers body Coldiretti warned that hot, dry weather had caused E100 million ($168 million) worth of damage to crops in northern Italy as yields - the amount of wheat or corn grown per hectare - would fall by up to 9 per cent.
The US Department of Agriculture said that growing conditions for the US spring wheat crop were the worst in 18 years because there was not enough moisture to germinate seeds. US spring wheat futures struck a 10-year high last week of $US5.35 a bushel in the Minneapolis Grain Exchange. The contract was up US10c on the day at $US5.05 on Thursday, a rise of more than 33 per cent from the beginning of 2006.
UK wheat futures reached a two-year high this week and are up more than 23 per cent this year. French wheat futures also struck a two-year high this week. Hedge funds have also been active in wheat futures, with a sharp increase in the number of wheat futures contracts bought in the US, the UK and Europe.
The concern about wheat production comes at a time when global production is projected to fall short of demand this season, which would make it the fifth of the past six years where demand has exceeded supply.
The US Department of Agriculture is expected to announce record low wheat inventories next year, which will come ahead of a sharp lift in wheat demand by the biofuel industry over the next two years as more ethanol plants using wheat as an ingredient open in Europe.
"Once the ethanol plants open, we will link the price of petrol to the price of bread, because the price of wheat will be settled by who pays more, the oil industry or the food industry," said Christopher Brodie, a partner at UK-based commodities hedge fund Krom River.
