The worst droughts in decades are wilting wheat fields from China to the US to the UK, overwhelming Russia’s return to grain markets and driving prices to the highest levels since 2008.
Parts of China, the biggest grower, had the least rain in a century, some European regions are the driest in 50 years and almost half the winter-wheat crop in the US, the largest exporter, is rated poor or worse. Inventory is dropping 8.8 per cent, the most in five years, Rabobank International says. Prices will advance 20 per cent to as high as $9.25 a bushel by December 31, a Bloomberg survey of 14 analysts and traders shows.
Wheat as much as doubled in the past year as crops failed, spurring Ukraine and Russia to curb shipments and increasing the US share of global sales by the most since 2004. Russia ending its export ban on July 1 and Ukraine lifting quotas may not be enough as crops wither elsewhere, fuelling gains in food prices which the United Nations says are already near a record.
“In 32 years, I’ve never seen so many problems in so many places,” said Dan Basse, the president of AgResource Co., a farm researcher in Chicago. “We’re concerned about the world story now,” said Basse, who has been studying agricultural markets since 1979 and expects prices as high as $10 this year.
For Paolo Barilla, vice chairman of Parma, Italy-based Barilla Holding SpA, the largest pasta maker, the yo-yo price moves are his biggest business worry, he said in an interview last month. Rising demand means grains will keep costing more, John Bryant, the chief executive officer of Battle Creek, Michigan-based Kellogg Co., the largest US maker of breakfast cereal, said in a conference call last month.
GRAIN PRICES
Higher prices will help US farm income rise 20 per cent to a record $94.7 billion this year, the government estimates. It also means the most profit ever for Moline, Illinois-based Deere & Co, the largest maker of agriculture equipment, analysts’ estimates compiled by Bloomberg show.
Futures traders anticipate rising wheat prices through March 2013, according to data from the Chicago Board of Trade. Speculators almost tripled their bets on gains in the two weeks ended May 31, figures from the US Commodity Futures Trading Commission show. The most widely held option gives the holder the right to buy wheat at $9 for July. Wheat fell 2.6 per cent to $7.7375 a bushel this year by the close on June 3, trailing the 11 per cent gain in the Standard & Poor’s GSCI Index of 24 commodities. The MSCI All-Country World Index of equities rose 2.8 per cent and Treasuries also returned 2.8 per cent. Wheat declined 1.2 per cent on Monday to $7.6425.
PRICE SURVEY
Prices were last as high as the $9.25 predicted in the Bloomberg survey in 2008, the middle of a three-year period when the US State Department estimates more than 60 food riots erupted worldwide. No one is predicting a return to the record $13.495 reached in February of that year, and global inventory will still be 44 per cent higher than it was then, according to US Department of Agriculture estimates.
Wheat slumped 7.4 per cent in the two days after Russia, formerly the second-largest exporter behind the US, said on May 28 its ban would end.
The country’s total grain harvest, decimated last year by the worst drought in a half century, may expand as much as 48 percent to 90 million tons this year, the Agriculture Ministry estimates. Exports of wheat will more than double to 10 million tons, the USDA said in May.
