September 29, 2006

 

High wheat prices causing US feed users to switch feeds

 

 

High prices are pushing down global consumption as feed users in Europe switch to less expensive grains such as barley and oil seeds, and users in America limit consumption, the International Grain Council said.

 

Wheat prices in Chicago rose to a nine-year high on speculation that drought would cut production by as much as half in Australia the third-largest wheat exporter behind the US and Canada.

 

Production in Australia may be 12 million to 15 million tonnes this year, down from 25.1 million last year, said AWB Ltd.

 

Wheat futures for December delivery rose 21.25 cents to US$4.46 a bushel on the Chicago Board of Trade, after earlier rising to US$4.48, the highest for most-active contract since 1997.

 

Prices have risen 36 percent in the past year as drought affected the major wheat-producers.

 

The council said global output would fall 4.9 percent to 588 million tonnes, and inventories would drop by a-third in the five largest exporting nations. Due to these developments, prices have rallied 14 percent in two weeks.

 

Wheat futures could also draw interest from investors who are drawn to the commodities sector but are wary of the recent declines in crude oil prices.

 

Unlike corn, which has a substantial long position, the wheat market is in a fairly neutral position and may gain further, financial analysts said.

 

The US is the biggest exporter of wheat and the third- largest producer behind China and India.

 

However, export sales so far have been the slowest in 30 years.

 

Sales since the start of the marketing year have fallen 11 percent to 10.2 million tonnes from 13.287 million in the same period a year earlier.

 

Still, increased purchases from countries such as India and Brazil, which had reduced harvests this year, are rallying prices, the grain council said. Wheat production is down 1.3 percent in India and 27 percent in Brazil.

 

By the end of June 2007, wheat stockpiles may have shrunk to about 116 million tonnes, from 135 million tonnes a year earlier, according to the council.