May 22, 2006

 

High US wheat prices driving users to look for alternatives

 

 

Although wheat prices in the US climbed to its highest in recent years, buyers may still have to cough up the money as options from alternative suppliers are limited, traders and analysts said on Friday (May 19).

 

Although US livestock producers rarely import ingredients for animal feed, recent rise in US prices have prompted some poultry producers to evaluate options for importing feed wheat and corn.

 

Futures prices for hard red winter wheat rose above US$5 a bushel last week while prices for other types of wheat, have risen to their highest levels in more than three years.

 

Soaring prices have caused users to mix US wheat with cheaper supplies from France, Germany, Russia and Ukraine. 

 

Despite the high prices, US customers like Japan, Mexico and Nigeria have continued absorbing price increases due to reasons such as limited options, proximity or the high quality of US wheat.

 

Meanwhile countries such as Egypt, Iraq and Jordan found it easier to defect due to proximity to wheat exporters such as Russia, Ukraine, Australia, France and Germany.

 

Still, wheat exporters, including the US, are expecting smaller crops this year due to drought conditions.

 

French analyst Strategie Grains lowered its estimates for 2006 European Union soft wheat production while severe cold in Russia has reduced much of its wheat crop. Overall, the US Agriculture Department is predicting the tightest world wheat stocks in 25 years.

 

US winter wheat production is down 12 percent because of increased abandonment and reduced yields due to drought, according to a USDA survey-based forecast. Total US wheat supplies will likely be down 8 percent.

 

USDA expects wheat production in the Black Sea region, Australia, Canada and India to fall also.

 

However, production in Argentina, the EU and North African should improve.