August 28, 2007

 

World grain prices soar on global harvest woes

 

 

Bakers, brewers and feed manufacturers around the world are to face production cost increases due to high global grain prices. 

 

Wheat prices have broken through all-time record levels, fuelling concerns that consumers could soon be paying even more for bread, baked goods, beef, chicken, eggs, beer and a range of products exposed to grain prices.

 

The December wheat futures contract on the Chicago Board of Trade briefly hit US$7.54 a bushel ($337/tonne) on Thursday, topping the previous all-time high of US$7.50 set in 1996, before closing up US$.0725 cents at US$7.39.

 

The December contract, which coincides with the Australian harvest, has hiked by 70 percent in the past year as production problems have struck most major wheat producing countries at a time when world stocks are at a 26-year low and the emerging biofuels industry has injected new demand.

 

Wheat exporter Australian Wheat Board (AWB) raised its estimated pool return this week for this summer's harvest by US$30 a tonne, taking it to US$300-a-tonne for the first time.

 

Prices for barley - a major livestock feed and a key ingredient in beer - also continue to break records.

 

Jason Craig, acting senior trading manager with Western Australian grain group CBH, said forward cash prices for the coming barley harvest as of August 27 had swept to US$325 a tonne for feed barley and IS$336 for malt barley this week -- a jump of US$20 since Tuesday last week and US$70 in the past three weeks.

 

The increase was due to problems in Ukraine which currently closes its doors to exports.

 

Craig said the "price spike was never before seen as if they are treading an unknown territory."

 

The latest rises have taken local prices far beyond the historically high returns paid to farmers last year as one of the worst droughts on record shrank the national harvest to less than half its average.

 

This time the market has largely been driven by international influences, including recent disruption to harvests in Europe, the US and Canada from rain and flooding.

 

But more recently it has also been driven by concern Australia's once-promising 2007 grain crop is deteriorating rapidly due to lack of rain.

 

The record prices in prospect for local farmers have also been helped by the fall in the Australia dollar over the past month from US88 cents to US82 cents.

 

Local growers have also been warned the current prices are unlikely to be sustained as northern hemisphere growers respond by potentially planting a record crop to wheat when they re-seed in coming months.

 

Outlying Chicago contracts point to a 20 per cent fall in the market mid-next year to about US$5.80 a bushel when the next northern hemisphere harvest comes on stream.

 

But market analysts also say few local farmers are in a position to lock in high prices because of growing fears they may not harvest enough grain to match forward commitments.

 

US grain research firm Profarmer said many farmers who used hedging instruments were actually staring down the barrel of hefty paper losses because they had already taken 2007-08 positions last year or early this year at what then looked like strong levels of US$4.50 to US$5.00 a bushel.