Posted on 02/08/2008 7:52:59 PM PST by TigerLikesRooster
Wheat price surge raises inflation fears
By Chris Flood in London
Published: February 8 2008 19:44 | Last updated: February 8 2008 19:44
A fall in US inventories of wheat to a 60-year low drove prices of the grain sharply higher on Friday to a fresh record, intensifying fears of rising global food price inflation.
US wheat futures – global benchmarks for the grain – have jumped by their daily trading limit each day this week. Prices for Minneapolis wheat, the US variety most suitable for making flour, rose 10.7 per cent on the week, extending its price surge since the beginning of the year to 50 per cent.
“We are in uncharted territory,” said James Bower of Bower Trading. “The market is desperately trying to tell global producers that we need more acres for wheat production.”
The price gains came after the latest update from the US Department of Agriculture fuelled concerns over low inventory levels. The USDA reduced its estimates for wheat stocks at the end of the 2007/08 marketing year to 272m bushels, compared with its January estimate of 292m bushels.
“The US has sold too much wheat and will have to import, probably from Canada, to satisfy its domestic requirements,” said a hedge fund manager. “This will have a major impact on the rest of the world if consuming countries can’t buy US wheat and Europe becomes the global supplier.”
Global stocks of wheat are expected to fall to a 30-year low as consuming countries have scrambled to ensure they have enough supplies for domestic consumption.
“With global inventories at very tight levels, we expect to see further upward pressure across grains prices,” said Sudakshina Unnikrishnan of Barclays Capital. “The question for the market is how these high prices will influence US farmers’ decisions to allocate land to crops this year.”
Record wheat and soyabean prices mean these crops are expected to win land at the expense of corn cultivation in 2008. The USDA will update the market on farmers’ planting intentions in March.
Analysts say India and China should allow domestic wheat prices to rise to attract land away from cotton. India says it expects to produce 74.81m tonnes of wheat in 2008, down from 75.81m tonnes last year.
India, the world’s second-largest wheat consumer, has imported wheat for the past two years but it says it might not need to import this year if favourable weather boosted production.
But Mark Samson of US Wheat Associates, the wheat marketing group, said India might have to buy 3m tonnes of wheat in the year starting in April, a 68 per cent rise on the previous year.
As a result of the price pressure, the Minneapolis Grain Exchange will remove the daily price limit on the spot-month hard red spring wheat contract for trading on February 25, the first time it has done so.
Complete nonsense. The by-product from bio fuels/ ethanol production is - animal feed.
Of course, those that gouge and profit from fear mongering like you to believe otherwize.
Don’t worry wheat is food, food and energy aren’t used in the inflation index. You won’t even know there’s any inflation at all.
There is a lot of land which farmers are/were paid subsidies NOT to grow corn and other grains on which can now go back into crop production.
Aren’t some the requirements for putting corn land into CRP based on erosion/water or wildlife conservation/water pollution aspects? It has been over 10 years since we had land in the CRP and we don’t farm, but instead rented our crop land prior to that, so while I have some direct knowledge, it is not current or from a producer standpoint.
Aren’t corn and wheat land quite different from each other? Can wheat be grown on former corn or bean land or vice versus? I thought one of the differentiating aspects was water availabilty and another is that wheat needs flat land, while corn and beans can be grown on smaller, hillier acres.
One of the aspects of this I have seen with farmers I know is that last year people stopped raising feeder calves and decided to put all their energies into crop farming,mostly feed corn and soy beans. I was told this was one of the main reasons beef had become so expensive. One beef rancher told me recently that the price of beef went high enough due to demand that some farmers returned to purchasing feeder calves.
Just from observation, farming seems profitable at the moment and our two businesses, both of which are dependant on consumer disposable income, are not suffering at all. I recently spoke with a relatively small distributor of craft and sewing notions from the Louisville area and they had a record year last year, with a strong start in January.
When markets increase due to demand, it is almost always the case that production increases to take advantage of that market. But farmers in many areas are being restricted by access to affordable water and the cost of fuel for production, transportation and, in the case of corn, for drying.
Personally, we have begun cutting our own wood instead of buying it and eating more vension. However, rising costs also mean that we will have to raise our own prices this Spring.
When I was in Taipei, I stayed at a very nice hotel and we got a breakfast buffet included in the room. They had smoked salmon. I when I got down for breakfast, the guy had just put out a whole silver plate of smoked salmon. I ate half of it.
I was hungry. That’s when I earned the nickname. I like duck eggs, but stayed away from duck paw.
I think most of the critics on here know little about farming and how the markets work.
I suspect that strong demand for Wheat from China and India along with the low dollar has much more to do with the price of Wheat than Ethanol. If the price of Pineapples or Cranberries went up the critics here would claim they was using the land to grow corn. For example fruit prices was up last year because of a killer frost not because orchard owners is cutting down their trees and planting corn.
Besides back when Carter was President we had high oil prices and low crop prices and the farmers went broke. Today we have high oil prices, high crop prices and the farmers are doing well. I guess most Freepers would like to see the farmers go broke. Hell adjusted for inflation and as percent of a person’s budget they are getting one hell of a bargain on the cost of food.
If Ethanol replaces 5% of the gasoline supply then that is money we are keeping in the nation and oil we are not importing. I don’t like subsidies but it cost the taxpayers less money to pay the distillers than it is to pay the farmers directly.
And if anyone knows the history of Ag Economics then they will predict the farmers will overproduce and drive the price down like they have so many times in the past.
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