Good news for Australian wheat farmers as they start thinking about the 2008-09 plantings in a few months: world wheat prices are now at all time highs after the sharpest weekly rise last week in the history of trading the grain in the US.
Wheat futures for March delivery rose 30 USc, or 2.8% Friday on the Chicago Board of Trade, to a record $US10.93 a bushell.
Traders said the price for the March contract (the current most traded contract), jumped the 30-cent exchange limit for five straight days. The 16% gain ($US1.50 a bushell) was the biggest in history.
Prices for Minneapolis wheat, (the US variety most suitable for flour-making) jumped 10.7% last week, to take the rise since the start of 2005 to a massive 50%.
Driving this was a combination of fears about the size of the current US crop and then news on Friday that US wheat stocks had plunged to a 60-year low.
US traders and commentators say these rises are bad news for food price inflation in the US and around the world and open up the difficult possibility of surging food prices while the US economy is slumping and people are losing jobs and incomes.
The news will be bad for big wheat and flour users, such as fast food groups, bakers, cakes, pasta, meat and retailers.
The price rises came after the US Department of Agriculture crop update for January cut estimates for wheat stocks at the end of the 2007-08 marketing year to 272 million bushells, compared with its January estimate of 292 million bushels.
The news shocked traders at a time when they had already spent four days chasing wheat prices to a succession of record levels.
US stocks at the end of May (the end of the international crop year) will be down 40% from the level at the end of May, 2006.
That will leave stocks at their lowest since 1948 when US farmers grew less and shipped more wheat overseas to help rebuilding countries after World War II.
Traders said America had sold too much wheat in the past few months and will have to import, probably from Canada, to satisfy its domestic requirements.
If this happens, the impact on world stocks and prices will be dramatic.
If the US is forced to curtail exports to maintain domestic stocks and Europe can't make up the difference (that includes the old Eastern Bloc), then world prices will rise sharply.
Australian production estimates for the current crop was left unchanged at 13 million tonnes, just over half the initial 25 million tonne estimate. Exports were unchanged from an earlier forecast at 8 million tonnes. Estimated exports in the last crop year in Australia were 8.73 million tonnes.
With good rains across much of NSW, Queensland, parts of Victoria and WA in recent months, the outlook for the new crop later this year will be excellent and we might have a chance of meeting the usual optimistic early forecasts.
If we can, it won't have much of a significant impact on world prices simply because of the sharp drop in stocks in the past year because of drought here and in several other countries and poor weather in Europe in last year's harvests.
The USDA said 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.
Of more importance is whether the high prices convince US growers to switch from corn and soybeans into wheat. Soybeans are trading at record levels because of rising demand and the fact that many growers in the US moved to corn to feed the growth in demand from the ethanol industry.
Strong demand in Asia, especially from China for beans, meal and especially oil has coincided with this fall in US production. Not even solid output from Brazil has been able to depress prices.
If US growers switch from corn (and cotton in some states) into wheat and soybeans for the new season, that will mean corn prices will rise (as they did last year), putting pressure on food prices in Mexico and in the US and European and Asian feed lot industries (they have already had to pay more for soybeans and meal).
Rising prices for soybean oil is helping add to upward pressure on canola oil and palm oil which are being chased by biodiesel producers in Europe, Asia (especially in Malaysia, Indonesia, Singapore and Vietnam) and Canada.
That in turn is pushing up the price of food products using these oils, or the cost of these oils for the food industry (canola, soy and palm oil are used extensively as cooking oils).
That will in turn put pressure on the ethanol industry in the US and force many to repeat their moves of last year of cutting output or shutting down because corn prices are too high and they can't recapture them in higher prices for ethanol (which is heavily subsidised anyway).
The USDA will update the market on farmers' planting intentions early next month and this will be a major influence on prices and forecasts.
Analysts say India and China should allow domestic wheat prices to rise to attract land away from cotton. India expects to produce 74.81m tonnes of wheat in 2008, down from 75.81m tonnes last year.
India is the world's second-largest wheat consumer. It has imported wheat for the past two years (and could buy all its needs from Australia, if we had the supplies), but it says it might not need to import this year if favourable weather boosted production. But now forecasters reckon India may need to import up to 3 million tonnes this year, which will add to the upward pressure on prices.
