Monday, 9 August 2010

Rise in Wheat Price Eases Thanks To USA and China

By Sunil Patel

The recent dramatic rise in wheat prices caused by a Russian ban on exports of the valuable grain may only be temporary as new supply is expected to hit the market.

Both the United States and China have vowed to step up production to meet the shortfall in world supplies.

However in the long-term, consumers may have to pay substantially more for bread, beer and meat, warn agriculture financiers Rabobank.

The price of the grain has spiked by almost 25 percent last week as droughts and wildfires in Russia destroyed one-fifth of the country’s crop.

In the UK, the Premier foods brand the Hovis Group confirmed it may be forced to pass any cost increase to its customers which could be as much as 10p on the average loaf of bread.

However, Luke Chandler, an agriculture analyst at Rabobank, told the Telegraph he expects the US and China will more than meet international demand.

He said: “Global wheat ending stocks are forecast to decline from 193m tonnes in 2009-10 to 178.8m tonnes in 2010-11.”

“The relatively small decline in global ending stocks is due primarily to a 6.9m tonne surplus in Chinese wheat production and higher-than-expected US production.”

Russia had been the fourth largest producer of wheat in the world in the 12 months to June behind the US, EU and Canada, according to the US Department of Agriculture.

The Russian ban on exports starts on August 15 and is expected to continue until the end of the year.

However, long-term there may be more price volatility in the international market and prices could remain high for the next ten years, warns Dirk Jan Kennes at Rabobank.

The Director of Commodities suggests wealthier populations in India and China will inevitably demand more wheat based products and meat, which keep the price of the grain high.

He said, “For the first time since the 2008 food crisis we’re producing less wheat than we consume.

“Growing populations and rising prosperity are causing this growth in demand.”

Dirk Jan Kennes said: “Not everyone makes the connection between meat and wheat.

 “Grains are essential elements of animal feeds, for every kilogram of chicken you buy in the shop, you need two kilogrammes of animal feed.”

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