January 19, 2011
European wheat price poised for the highest level
Global wheat stocks are so tight and grain demand so strong that any new delay in a major producing area would fire already bullish markets and send European prices near or beyond 2008''s all-time highs.
Prices of wheat, a food staple in many developing countries, were at the head of a surge in food prices in 2010, sparking concerns among world leaders that any further increase could trigger deadly riots like those seen two years ago.
High food costs are already behind violent protests in North African countries and the unrest that toppled Tunisia''s president and prompted neighbouring states to speed up wheat purchases to secure supplies.
And swelling concerns about crops in top producing countries after adverse weather, including dryness in the US, coupled with ever rising demand, are likely to keep supporting global wheat prices in 2011, analysts say.
"If Mother Nature is unfavourable, which is what it is doing at the moment, we are going to prolong the agony and we have not necessarily seen the peak," said James Dunsterville, head analyst with Geneva-based Agrinews.
In the EU, the world''s second-biggest wheat exporter, prices doubled in the 12 months to January 18, mainly boosted by Russia''s ban on exports after a severe drought slashed its crops and by strong North African demand.
US wheat prices also surged over the past year, though to a lesser extent, partly due to lower exports and ample stocks.
There is little sign of relief on the horizon for prices of quality wheat. Analysts do not expect Russia to open its gates to exports until at least July.
Devastating floods in Australia and dry weather in Latin America and parts of top exporter the US are feeding a bullish mood in global grain markets, with prices in Europe hitting nearly three-year highs every week since mid-December.
"Market prices are very vulnerable in case of adverse weather effects, because the cushion is so low after the crop losses encountered in the current crop year," said Cartsen Fritsch, an analyst at Commerzbank commodity research.
European milling wheat futures are now only 15% away from their all-time high of EUR300 (US$403.01) per tonne in 2007/08. Analysts say it would not take much to fill the gap.
"If there are additional crop failures, we could see prices reach US$9 a bushel or 300 euros per tonne over the course of the year," Fritsch said.
At US$9, CBOT wheat futures would still be 32% below the 2008 high of US$13.30 a bushel.
Analysts said US wheat futures are unlikely to revisit their 2008 peaks as expectations of higher global wheat crops in 2011 would keep a lid on prices, even in case of weather damage, with the most ambitious estimate at around US$9.
"It certainly pays to grow stuff at the moment, so that''s why I''m not saying we will hit US$10 per bushel. Prices will be somewhat moderated by the big supply response," said Adam Davis, senior grain trader at Melbourne-based fund Merricks Capital.