January 12, 2005

 

 

Global Wheat Prices Decline As Bumper Crop Raises Supply

 

Wheat prices have dropped 30 per cent since April as producers in Europe and North America struggle to sell last summer's bumper crop. Speculators too are betting on further falls.

 

Lower prices have not benefited all customers, however, with prices for milling wheat, remaining high in the UK and Canada. Wet weather late in the harvest has caused a shortage of good-quality wheat.

 

Wheat farmers in the European Union have been toiling for the past four months to sell their 2004 summer harvest, which was 57 million tons more than the previous year. It does not help either that the euro is at a record high against the dollar.

 

Their task was made more difficult recently by the harvesting of the Argentine wheat crop, which prompted South American growers to sell aggressively in Asia and Africa by undercutting European and North American export prices.

 

Traders said the weak peso and the export success of other crops in recent years had prompted Argentine wheat farmers to market their grain beyond their traditional export markets in the Latin American region.

 

Wheat output in Argentina is forecast at almost 16.35 million tons, up almost 2 million tons on last year.

 

Adding to the huge supply is a large wheat crop in Ukraine, which yesterday said its wheat harvest rose to 17.5 million tons in 2004 from a disastrous 3.6 million in 2003, but still short of the 20.2 million produced in 2002, according to the country's official statistics.

 

These increases in wheat production have led the International Grains Council to forecast global wheat output for the year to June 30 to reach 618 million tons, up from 554 million the previous year.

 

However, in spite of the increased volume, there has been a lower share of higher quality wheat used for flour milling to bake bread, biscuits and cakes.

 

This has brought a widening in the premium for milling wheat over feed wheat, which is used for animal feed.

 

The UK, which grows mainly feed wheat, has seen milling wheat prices rise £35 above the local feed wheat price of about £65 a ton, which is down from a seven-year high of £116 in December 2003. "I have not seen premiums as large as this for a very long time," said Peter Jones, chairman of the wheat committee for the National Association of British and Irish Millers.

 

The high milling wheat price has meant that food companies have been unable to benefit from the fall in wheat futures prices in North America and Europe in the past year.

 

UK-based Northern Foods cited high raw material costs as a factor behind its profit warning this week.

 

But wheat prices are also suffering from a record US maize crop last summer, as both wheat and maize compete with each other for the animal feed market.

 

This has caused prices for both grains to fall sharply from last year's highs. The Chicago Board of Trade wheat futures contract, the global benchmark for wheat prices, has fallen almost 30 per cent from April to about $3 a bushel.

 

Corn futures prices are at just above $2 a bushel, down almost 40 per since April, when prices were at eight-year highs.