July 24, 2006

 

Wheat price soars as stocks run low

 

 

Wheat prices are expected to hit 10-year highs as the mercury hits record highs in the northern hemisphere. The price-increase is further boosted by low global stocks and higher demand for biofuels. 

 

The US is having its warmest year on record while Europe is sweltering under a heatwave that is expected to lower crop yields.

 

Wheat farmers in the UK are harvesting a month ahead of schedule to avoid further damage while Italian wheat authorities estimate yield would fall by up to 9 percent.

 

The USDA said growing conditions for the US spring wheat crop were the worst in 18 years as dry conditions have prevented seed germination.

 

Wheat futures are also rising throughout the northern hemisphere, with a sharp increase in the number of wheat futures contracts bought in the US, the UK and Europe.

 

This would be the fifth of the past six years where global production is projected to fall short of demand.

 

Both the US and Europe are expected to announce record low wheat inventories next year, especially the latter, where there is a growing number of ethanol plants using wheat as an ingredient.

 

Concern is growing over anticipated EU crop losses. Last week, Strategie Grains lowered its EU grain production estimate by 2.3 million tonnes.

 

The main countries with reduced yield potential are France, Germany, and Hungary whereas Spain is expected to have a good quality wheat crop while that in Italy is thought to be poorer than last year.

 

High temperatures has also affected eastern Europe, with the Czech Republic's grain production estimate 10 percent lower than 2005.