World wheat shortages loom - prices soar

Australia forecast the smallest wheat crop in 12 years last week as exceptionally dry, warm weather, especially during the critical month of September, shriveled wheat in most growing regions of Australia and the price jumped to US$5.085 a bushel on the Chicago Board.

Droughts in the Ukraine and mid west U.S. have sent the world's most planted cereal crop price soar by 50 % this year. U.S. production dropped by 14 % because of the drought in the Midwest this year.In Texas, wheat production is the lowest since 1971, while acres harvested for grain are the lowest since 1925. Oklahoma's production is the lowest since 1971, and acres harvested for grain are the lowest since 1955.

Market watchers forecast US$7.50 a bushel as World inventories had fallen 43 % by June to 119.3 million tons, the lowest since 1982, according to the US Department of Agriculture (USDA) on Oct. 16th.

Wheat prices are being driven by prospects for a 2006-07 world wheat crop that is 5.4 percent smaller than last year’s crop and 4.8 percent less than projected consumption. United States wheat ending stocks are projected to be the tightest since 1996 and world ending stocks are projected to be the tightest since 1988.

Put in starker terms that means that there is enough in the cupboard to keep people alive on basic grains worldwide for 57 days... 50% of the level 10 years ago.

Monthly USDA World Wheat Outlook available as Excel spreadsheets here

Australia, the third-biggest exporter, will see its wheat crop decline 61 % to 9.5 million tons. Ukraine, the sixth-largest exporter, expects its harvest will drop 10 %. Grain importing nations like Egypt and India are fighting to obtain supplies and paying up to 300% more than last year. India will mport 6 million tons this year, compared with 300,000 tons last year, making it a net importer for the first time since 2000, the USDA said.

Michigan based Kellogg are already hurting and expects higher costs for wheat, sugar and fuel will cut profit by as much as 30 cents a share this year, equal to 11 percent of last year's total. They have recently cut 220 jobs at their Old Trafford Corn Flakes plant in Manchester in a major cost cutting exercise... the last NW business to use the 250 yr old Bridgewater canal .... for carrying grain. (Q3 /06 Net sales rose 8% and diluted EPS rose 6% to 70 cents a share)

Shares in Missouri based Panera Bread Co with1,000 bakeries and trendy eateries , on Oct. 25 dropped 6.2 % after the company reported Q3 profits missed some analysts' estimates and that costs may rise next year, including expenses for wheat and flour.

In 1973 along with the oil shock , the world price for wheat went up six-fold. Wheat prices ricochet through the food supply chain -

1. Higher prices for cereal and breads eaten directly by humans
2. Higher prices for milk and meat produced from livestock fed a grain-based diet
3. Changes to the economics of using grain as feedstock to ethanol
4. Labour shortages in agriculture will affect costs as farm workers who tended livestock in barns reduced need as cows came to the grain and didn't graze on pasture grasses.

For the future expect to pay more for your bread .. RHM the major milling / baking group in the UK in a statement yesterday said ....

The lag in recovery of higher wheat costs is estimated to have had a £2m impact in the first half of the year. The full year impact will depend upon further movements in the wheat price and the timing of bread price increases.

Get out the dough bowl and buy some yeast.