Wheat hits record in Chicago on supply concerns

Business Times 7 Feb 08;

Wheat has gained 17 per cent this year, outperforming crude oil and copper.

(CHICAGO) Wheat surged to a record in Chicago, leading other grains and oilseeds higher on shrinking US and Canadian supplies of high-protein varieties used for bread and pasta.

Canada, the largest wheat exporter after the US, said on Tuesday that its inventories of the grain plunged by almost a third after adverse weather hurt crops. US spring-wheat inventories will total 88 million bushels on May 31, down 25 per cent from a year earlier, according to government forecasts.

The jump in grain prices may increase costs for food producers, including Kellogg Co and General Mills Inc, the largest US cereal makers. It also risks stoking inflation and making it more difficult for central bankers around the world to stave off recession by cutting interest rates.

Chicago Board of Trade wheat futures, the global benchmark, rose by the exchange-imposed daily limit of 30 US cents for a third day. The March-delivery contract was 3 per cent higher at US$10.33 a bushel in after-hours electronic trading at 1.19pm Tokyo time, beating the previous record of US$10.095 set on Dec 17.

'Reduced supplies in Canada prompted wheat buyers to seek alternative supplies in the US, leading to a drawdown in US inventories,' Kenji Kobayashi, an analyst at Kanetsu Asset Management Co in Tokyo, said by phone.

In the past year, Chicago wheat futures more than doubled and in Minneapolis, where spring wheat trades, prices almost tripled.

On the Minneapolis Grain Exchange, wheat for May delivery rose the daily limit of 30 cents, or 2.3 per cent, to US$13.6475 a bushel. The contract has gained the exchange-imposed maximum in seven of the past nine sessions.

Wheat has gained 17 per cent this year, outperforming crude oil and copper, as prices of industrial commodities were capped by concern that slowing economies may curve demand.

US demand isn't affected by a slowdown in the economy as the grain is a staple food, said Nobuyuki Chino, president of Tokyo-based grain trading company Unipac Grain Ltd.

'People without much money to spend tend to eat grains more, as meat and other more expensive products are not affordable,' Mr Chino said yesterday\. \-- Bloomberg