Food costs to rise further as wheat prices hit all-time high

High prices of basic commodities threaten to derail economic growth, analysts warn
Straits Times 18 Dec 07;

NEW YORK - THE price of wheat has risen above US$10 (S$14.40) a bushel for the first time, leading to rises for other grains and oilseeds, in a food price spiral which threatens to derail global economic growth.

Chicago wheat futures has jumped by as much as 30 US cents, or 3.1 per cent, to US$10.095 a bushel as dry weather threatened crops in Argentina, renewing concern that the world's farmers may not be able to grow enough to meet rising demand.

The price of rice has also advanced to a record, while that of soya beans posted its highest level in 34 years and corn prices hit a 11-year peak.

The cost of wheat, used as livestock feed as well as to make bread, cereals and noodles, has more than doubled in the past year as adverse weather reduced output in the major exporting countries of Australia, Argentina, Canada and the United States.

The reduced output comes on top of high demand, particularly in emerging economies - such as China and India - where rising incomes are boosting consumption of meat and dairy products.

Prices have also come under pressures generated by the biofuel industry.

'Global supply is really tight at this time,' said Mr Tobin Gorey, a commodity strategist at Commonwealth Bank of Australia in Sydney.

'Saying there is a near-term top in the price is a very dangerous thing to do.'

Consumers around the world, including Singapore, already hit by a first wave of surging cereal prices this year, should brace themselves for knock-on effects in the coming months from the latest rises.

The Financial Times yesterday noted that the first round of price increases in the wholesale market earlier this year had fed through the supply chain and contributed to rising inflation in the European Union and elsewhere.

The increase of eurozone food price inflation to 4.3 per cent last month was one of the main reasons for the jump in the zone's annual inflation rate from 2.6 per cent in October to 3.1 per cent last month, the highest in six years.

In the US, annual food price inflation of 4.8 per cent last month contributed to a rise in the inflation rate to 4.3 per cent.

China's food costs rose 18.2 per cent last month, pushing inflation to its highest level in 11 years.

China, the world's biggest grain consumer, yesterday said it would eliminate export tax rebates on a range of food commodities as part of a series of measures to secure domestic supplies and control rising food prices.

Tax incentives on exports of crops, including wheat, rice, soya beans, corn, barley and oats, as well as flour milled from these grains, would be eliminated from Thursday, says a statement on the central government's website.

In an attempt to curb prices, Bejing has sold corn, wheat and vegetable oil from state reserves and asked the local authorities to boost emergency stockpiles.

Many other countries have reacted to soaring food prices by slashing import tariffs on major agricultural commodities to cushion their local markets against rising food inflation.

Cuts have been announced in Azerbaijan, Bangladesh, Bosnia, Egypt, Ghana, India, Mexico, Morocco, Nigeria, Peru, the Philippines, Taiwan and Russia.

Mr Ali Arslan Gurkan, head of the commodity market division at the UN's Food and Agriculture Organisation in Rome, said the tariff reduction is the latest sign that policy-makers are trying to cope with rising food costs.

'Governments are finding it politically inevitable to reduce local food prices and this situation is likely to continue,' Mr Gurkan said.

Mr Sorin Vasloban of the Paris- based cereal trading house Plantureux said: 'The prices of agricultural commodities have stabilised at very high levels and countries need to resort to these measures to control inflation.'

But the reduction in import tariffs has been offset by higher export tariffs - which aim to help keep local markets well supplied - in several key exporting countries.

Farmers, in the meantime, are celebrating.

In the US state of Iowa, Mr Gordon Wassenaar has his eye on a US$300,000 combine harvester to replace the 1990 model he has to repair each winter.

And he has just bought more land to add to his 650-ha spread.

'These are the best couple of years I've probably ever had,' said Mr Wassenaar, who has lived in the same weathered white farmhouse and raised corn and soya beans in the surrounding Iowa fields for 52 years.

BLOOMBERG, REUTERS

Grain prices spiralling up
# Wheat: Has surpassed US$10 (S$14.40) a bushel for the first time.
# Rice: Futures last Friday settled at US$13.1250 per 100lbs, just shy of the previous record price of US$13.40 set in January 1988.
# Soya bean: Jumped to US$11.9225 a bushel, the highest since June 1973.
# Corn: Advanced to US$4.4275 a bushel, a nine-month high.
Source: Chicago Board of Trade


Wheat price surges above US$10 for first time
Business Times 18 Dec 007

(NEW YORK) Wheat rose above US$10 a bushel for the first time, leading other grains and oilseeds higher in a food price spiral that threatens to derail global economic growth.

Chicago wheat futures jumped as much as 30 cents, or 3.1 per cent, to US$10.095 a bushel as dry weather threatened crops in Argentina, renewing concern that the world's farmers may not be able to grow enough to meet rising demand for bread, pasta and livestock feed.

Rice also advanced to a record, while soybeans gained to the highest in 34 years and corn to a nine-month peak.

Kellogg Co, the largest US cereal maker, General Mills Inc, Nissin Food Products Co and Kikkoman Corp are among companies that have raised prices.

'We are seeing a broad-based increase in cost pressures,' Brian Redican, senior economist at Macquarie Group Ltd, said in an interview from Sydney yesterday. 'The increase in soft commodity prices is really the next stage in that process.'

The price of wheat has more than doubled in the past year as adverse weather reduced output from Australia to the US and Canada. Dry, warm weather may hurt yields in Argentina, the fourth-largest exporter, forecaster Meteorlogix LLC said on Dec 14.

'Global supply is really tight at this time,' Tobin Gorey, a commodity strategist at Commonwealth Bank of Australia, said by phone. 'Saying there's a near-term top in the price is a very dangerous thing to do.'

A smaller Argentine crop may reduce global wheat inventories that the US government says will drop 11 per cent by May 31 to 110.1 million metric tons.

Wheat for March delivery, the most-active contract, rose the exchange-imposed daily limit of 30 cents before trading at US$10.05 a bushel, up 2.6 per cent, in after-hours electronic trading on the Chicago Board of Trade on Friday. -- Bloomberg