So, has the surge gone out of the urge to push world grain prices, especially wheat, higher?
While corn, rice and oil seeds like soybeans remain at near record levels, world wheat prices, perhaps the most accurate barometer of sentiment in global grain and food markets, have plunged 40% from the all time high in February and are now at a six month low.
World wheat prices are set by trading in soft red wheat on the Chicago Board of Trade, and in trading in other types in Kansas City and in Minneapolis. But they are not as influential as the Chicago market (called the CBOT).
Now expectations of a recovery in major growing areas, such as Australia and Eastern Europe, and higher plantings in the US and a solid performance in Argentina, has seen prices drop sharply.
Major financial investors (speculators to some) have largely quit the wheat market in recent weeks, so sharp has been the drop in price.
US soft red winter wheat fell to its lowest level since November at $US8.01 a bushel on Friday on the CBOT and it closed at $US8.15 for July futures.
It hit a record peak of $US13.495 a bushel in February, driven by the cumulative impact of the second drought hit harvest in Australia in a row, poor yields in western Europe and export controls in countries in Eastern Europe (especially The Ukraine) and controls by Argentina on exports (which have intensified).
Also helping drive prices was the aggressive investing activities of financial investors, drawn to the increased volatility, and the surge in the price of corn and soybeans at the same time, with edible oil prices also rising.
At the same time, two successive droughts in Australia and lower yields in parts of the US and Europe meant world and US stocks fell to 50 and 60 year lows, thanks to rising exports from the US which had the only surplus grain.
The increase in demand has been driven by the shortfalls from Australia, Eastern Europe and Argentina and was overlain by the changing dietary habits in emerging and developing economies such as China and India. China itself had harvest and yield concerns, thanks to drought and problems with competing land usage policies as rural land was converted to urban and industrial for factories and homes.
Demand from Asia’s fast growing economies for wheat, which is used to make bread, pasta and noodles contributed to the higher prices, as did the corn surge late last year which flowed over into wheat. That prompted protests in Italy over the price of pasta making flour (durum wheat which was in short supply) and tortillas in Mexico (which are made from maize or corn flour).
Now growing areas in Australia have had good rain and a solid increase in the size of the crop is hoped for (from around 13 .5 million tonnes to over 20 million). But some areas still need good winter and spring rains.
India’s harvest is also solid and in the US the record prices for wheat saw corn farmers switch to wheat. Record prices for soybeans also saw corn and cotton farmers also switch to soybeans.
With this background, the International Grains Council has forecast a record world wheat crop of 645 million tonnes in 2008-9.
Wheat prices fell Wednesday and Thursday on talk that India, the world’s second-biggest consumer, had boosted purchases from domestic producers.
India indicated it may not need to import wheat after buying 10.4 million tonnes of wheat locally since the harvest started last week, 3.6 million tonnes more than a year earlier. With Indian production reaching towards a record 76.8 million tonnes by the end of June, the news of no imports was bearish for prices, but bullish for consumers.
The surge in production in India has seen expectations of its import needs drop by two thirds. The US Department of Agriculture forecasts India will now need to import only 2 million tonnes of wheat in the year to May 31, down from 6.7 million tonnes in the year to May 31, 2007.
However the Indian Government indicated on April 23 it may not need to purchase any wheat from global markets because of higher domestic production, and that kicked prices sharply lower.
That helped wheat fall 7.8% last week after dropping 11% in the first two weeks of April.
But futures prices are still 61% over the past year, which is still causing shortages and pricing pressures as users attempt to reclaim the higher prices in higher selling prices for products made from wheat flour.
The possibility is rising that Ukraine will return to the global market as a major supplier (around Number 5) came on top of prospects of a bumper crop in traditional growing areas such as the Black Sea basin, Australia, Canada and the European Union, prompting some analysts to say the worst of the wheat price inflation was now over.
Ukraine said it would allow exports of 1.2 million tonnes in the next two months, up from a previous quota of just 200,000 tonnes.
In its latest forecast, The International Grains Council said last Thursday the global wheat crop estimate of 645 million tonnes this year, compares to 603.5 million tonnes in 2007.
Rice prices remain unsettled with more bans and mixed news on prices of premium types in Thai auctions.
In Chicago on Friday corn futures for July delivery rose 1.25 USc to $US5.9075 a bushel on the CBOT. Despite that, the price fell 3.6% last week, buffeted by falling prices for wheat and the volatility in oil and US dollar markets.
Corn prices are still up around 55% in the past year, reaching a record $US6.23 on April 17.
July soybean fell 24c to $US13.37 a bushel: the price fell 2.9% last week but is still up more than 80% in the past year.
And sugar prices fell to their lowest price in almost three weeks as the volatile US dollar made traders wary.<
