January 26, 2005

 

 

Global wheat prices to rise 15%, say commodity analysts

 

Wheat prices, which touched a 20-month low last week, may rise 15 percent as inventories fail to recover, Commonwealth Bank of Australia said.

 

The bank, Australia's second-largest lender, predicts prices will reach US$3.40 a bushel on the Chicago Board of Trade or US$4 if frosty weather conditions in North America and Europe damage crops. Wheat for March delivery rose 0.1 percent to US$2.955 a bushel in after-hours trading at 11:27 a.m. London time.

 

Bumper crops in Europe and Argentina will boost wheat inventories this year by 11 percent from a 20-year low, according to the U.S. Department of Agriculture. That would leave stockpiles at 145 million metric tons, still 19 percent below the 10-year average.

 

Buying March futures at today's price and selling them at the forecast price would net US$2,200 profit on each 5,000-bushel contract, which requires a deposit of US$608 with the exchange. A futures contract is an agreement to buy or sell a commodity at a specified price and date.

 

Abare, the Australian government's commodity forecaster, predicted Dec. 13 that average prices for U.S. hard winter wheat will rise to US$151 a metric ton in the first quarter, or about US$4.11 a bushel, before dropping 3.3 percent in the next three months to US$3.97.

 

Wheat prices in Chicago fell to US$2.9475 a bushel on Jan. 20, the lowest closing price for a most-active contract since May 6, 2003. Futures are down 26 percent from previous year's after record global output heightened competition for sales of U.S. grain to Egypt, China and other export markets.

 

In Egypt, the world's second-largest wheat importer, U.S. exporters have lost almost half their market share in recent months to buyers who prefer cheaper grain from Russia and Ukraine. Lower U.S. prices are prompting farmers to switch to growing more profitable crops, lowering production prospects.

 

"In the U.S., winter wheat seedings are well down on last year, partly due to lower prices,'' an analyst said. "Although crop conditions in the U.S. are good, this won't necessarily translate into a larger crop.''

 

Global wheat production last year rose 12 percent to 621 million tons, the USDA said on Jan. 12. This year, with global wheat crops at 5 percent below current harvests, the risk of tighter supplies justifies higher prices.''

 

The 25-nation European Union will be the world's biggest wheat grower in 2004-05, ahead of China, India, the U.S. and Russia, according to the U.S. agriculture department. Wheat is the fourth-biggest U.S. crop, valued at US$8 billion last year, behind corn, soybeans and hay, government figures show.