High Demand + Low Supply = Record Wheat

Avatar for Matt Hopkins By Andrea Klosterman Harris|29 August 2007

As global consumption exceeded production for the seventh time in eight years, the most-active wheat futures have gained as much as 97 percent. Wheat – the fourth- biggest U.S. crop, behind corn, soybeans and hay – was valued at $7.7 billion in 2006, according to U.S. government data. Last week, as demand increased for US supplies while global inventories were forecast to fall to their lowest point in 26 years, wheat hit record prices. US exporters sold 1.232 million metric tons, up 17 percent from the week prior, greatly exceding the 700,000 to 1.1 million tons forecast by Chicago’s Citigroup Global Markets. Overseas orders for US wheat for the period of June 1 through Aug. 23 are up 95 percent, with prices almost doubling over the past year. High demand has been created by falling global stockpiles, which are expected to be at 114.8 million tons by May 31. This would mark the lowest end-of-the-marketing-year since 1982. Exporting countries such as Australia, Ukraine and the US have experienced reduced production over this period, caused by factors such as drought in the Ukraine and Australia – whose production last year was down by 61% from the previous year – and freezing temperatures followed by heavy rains in the US. Other countries, such as Canada, Argentina, and the region of Europe are also suffering from dry weather. Currently, the US and Russia are the main supplying countries, with no additional harvests until around October in the Southern Hemisphere. Given the limited supply, importers are paying record prices. Active wheat futures on the Chicago Board of Trade for December delivery hit a record US$7.885 per bushel before closing at $7.845 a bushel. On Paris’ Liffe Exchange, wheat futures rose to a record 256.75 euros per metric ton, or $9.53 a bushel. In Johannesburg, the South African Futures Exchange listed the grain at a record 2,872 rand a metric ton, or $10.92 a bushel.