May 22, 2006

Fears of global drought and low stocks drive rising wheat prices

A global drought in major wheat-producing countries and low world grain stocks are fueling rising wheat prices amid predictions of shortages, farm economists said.

Wheat prices are expected to climb continually as global wheat stocks hit their lowest in 25 years, said Mike Woolverton, a grain marketing economist at Kansas State University.

Wheat prices have hit US$5 a bushel since the Agricultural Statistics Service released its forecast last week for the nation's winter wheat crop, the first time since 2002. 

Rising prices have come about as drought affected US winter wheat crops in the nation's Southern Plains, reducing two thirds of Texa's normal crop and leaving Oklahoma with half its usual crop.

Wheat forecast in the state of Kansas, the nation's biggest wheat producer, is already down 16 percent from a year ago and if the latest weather forecast materialises, the wheat harvest could be even smaller.

There would be a shortage of good milling wheat and it would continue into next year, Woolverton said.

The shortage situation is exacerbated by the FAO's report that two-thirds of the winter wheat crop in western and northern China has been eliminated by prolong drought.

Droughts are also occurring in Russia, Ukraine, India and east Africa, according to Wolverton. While wheat output is expected to be lower in these countries, Argentina, Australia and Canada are expected to export more wheat this year, according to the agriculture department.