US wheat prices struck a 10-year high yesterday on fears of a further decline in global wheat production at a time when global stockpiles are near 20-year lows. The latest rise is expected to lead to higher food prices, affecting bread, breakfast cereals, pizzas and pasta.
Wheat harvests from Australia to Argentina, Europe and North America have been affected by drought, heatwaves and, in the case of Ukraine, infestation from the Eurygaster beetle. Global wheat supplies have fallen about 5 per cent - or 30 million tonnes - from last year. Ukraine's wheat exports were stalled after authorities in Kiev insisted that grain traders apply for export licences.
Wheat futures in Chicago reached a 10-year high yesterday morning, touching $5.24 (€4.18) a bushel, a rise of more than 13 per cent in the past two days.
Traders said if the highs of 1996 were stripped out, current prices would represent their highest levels in 30 years, referring to the heatwave of 1976, which reduced global grain output.
Chicago wheat futures have risen more than one-third in the past month on dramatic revisions of the outlook for Australia's wheat crop, which is expected to be less than half the 24 million tonnes harvested last year.
About 70 per cent of Australia's wheat output is exported, mainly to flour millers in Asia, which may now be forced to pay higher prices to secure supplies. Other big wheat importers include Egypt, Nigeria and Iraq.
"This is not just an issue of an odd drought here and there, but a structural issue with the wheat market, with global stockpiles so low and demand continuing to rise," said Chris Brodie, a partner at Krom River Partners, a London-based hedge fund.
Investors waded into global wheat futures in recent weeks, betting on further price rises.
The US department of agriculture is expected this week to lower its assessment of global wheat stockpiles. Its current estimate of 126 million tonnes - about 57 days of global demand - is the lowest level of demand cover in more than 20 years.
Gary Sharkey, head of wheat at the National Association of British and Irish Millers, said that global markets would remain finely balanced over the next 12 months. "If we have another dry spring or summer in the US, then we could be facing all sorts of issues," he said.
Analysts said flour and eventually food prices would rise if current wheat prices held. Analyst Andrew Saunders at Numis, the investment bank, said: "Food producers will seek to pass this [ price rise]on to the retailers and in turn consumers will bear the brunt of these higher prices with increased food prices."
