Wheat goes over $10 on supply concerns

Wheat rose above $10 a bushel for the first time, leading other grains and oilseeds higher in a food price spiral that threatens to derail global economic growth.

Chicago wheat futures jumped as much as 30 cents, or 3.1 percent, to $10.095 a bushel as dry weather threatened crops in Argentina, renewing concern that the world's farmers may not be able to grow enough to meet rising demand for bread, pasta and livestock feed. Rice also advanced to a record, while soybeans gained to the highest in 34 years and corn to a nine-month peak.

Rising prices of food and fuel are stoking inflation and making it more difficult for the world's central bankers to lower interest rates. Kellogg Co, the largest US cereal maker, General Mills Inc, Nissin Food Products Co and Kikkoman Corp are among companies that have raised prices.

"We are seeing a broad-based increase in cost pressures," Brian Redican, senior economist at Macquarie Group Ltd, said in an interview from Sydney yesterday. "The increase in soft commodity prices is really the next stage in that process."

The price of wheat has more than doubled in the past year as adverse weather reduced output from Australia to the United States and Canada. Dry, warm weather may hurt yields in Argentina, the fourth-largest exporter, forecaster Meteorlogix LLC said on Friday.

"Global supply is really tight at this time," said Tobin Gorey, a commodity strategist at Commonwealth Bank of Australia. "Saying there's a near-term top in the price is a very dangerous thing to do."

A smaller Argentine crop may reduce global wheat inventories that the US government says will drop 11 percent by May 31 to 110.1 million metric tons.

'Fear factor'

Wheat for March delivery, the most-active contract, rose the exchange-imposed daily limit of 30 cents before trading at $10.05 a bushel, up 2.6 percent, in after-hours electronic trading on the Chicago Board of Trade at 5:10 pm Sydney time.

US consumer prices rose the most in more than two years last month, reinforcing the Federal Reserve's concern that inflation will erode confidence in the economy. The consumer price index increased 0.8 percent in November, up from 0.3 percent the previous month, the Labor Department said on Friday.

Inflation in Europe last month rose at its fastest annual pace since May 2001, increasing 3.1 percent as food costs soared.

"People need to eat and that's part of the fear factor in this environment," Brett Cooper, senior client advisor, commodities, with broker MF Global Australia Ltd, said. Prices for wheat may extend gains, he said. "There's people saying potentially $11 or even $13."

Sara Lee Corp said last Thursday it will increase bread prices for a second time since September. Nissin Food will raise prices on its famous Cup O'Noodles for the first time since 1990 from January 1 because of a rise in wheat prices, it said on September 5.

Kikkoman, Japan's biggest maker of soy sauce, said last week it will raise prices for the first time in 18 years because of increasing crude oil and raw material costs.

AWB Ltd, Australia's largest wheat exporter, said international buyers are shying away from prices, in a statement to the Australian Stock Exchange yesterday.

"International buyers are reluctant to lock in significant tonnage at the current prices as their flour margins are negligible," Melbourne-based AWB's David Johnson said in the statement.

AWB "expects the international wheat market to remain extremely tight for the first half of 2008".

Bloomberg News

(China Daily 12/18/2007 page16)