Wheat Prices at a High As Inflation Fears Grow

By BILL CONDIE

HARD on the heels of big rises in the price of Kingsmill and Hovis bread in the UK, global wheat prices today soared to new records.

Wheat prices have already been driven high by the wet summer in northern Europe, farmers shifting to production of biofuels rather than corn and surging demand in Asia.

But figures today suggesting a massive production shortfall in droughtridden Australia sent prices up a further 2% to more than $9 a bushel for the first time.

Shortages have pushed global stockpiles near to a 26-year low putting even more upward pressure on prices for bread and other flour-based products like pasta in the UK.

Increases in grain prices also affect the price of meat and dairy as it drives up the cost of animal feed.

Food prices in British shops are already rising fast, with many expecting an average supermarket basket could go up 30% by Christmas.

Kingsmill owner Associated British Foods and Hovis maker Premier were already reeling from “recent sharp increases” in the cost of flour after wheat more than doubled in the past year.

AB Foods has already put up bread prices once this year but that has not stopped increased losses for its Allied Bakeries arm, which has been hit by currency weakness and restructuring costs. Breadmaking accounts for about 7% of the AB Foods business.

Finance director John Bason said this week that further price rises were “a matter of when, not if “.

Official US forecasts for the Australian crop have been cut from 23 million tonnes to 18 million tonnes while in Canada, the world’s secondlargest wheat exporter, reserves of the grain plunged 29% at the end of July. Some analysts say output in Australia, the world’s third-largest shipper of the grain after the US and Canada, could be as low as 15 million tonnes.

Wheat price rises are stoking inflation in the US, limiting the scope of the Federal Reserve to cut rates amid the housing and credit crisis.

“The market is in a real frenzy,” Tobin Gorey, a commodity strategist with Commonwealth Bank of Australia in Sydney, told Bloomberg.

“It’s feeding through to the consumer.” Wheat for December rose nearly 2% in after-hours trading on the Chicago Board of Trade.

Australian farmers face an unprecedented crisis within a month unless spring rains arrive, said agriculture minister Peter McGauran.

Overall global wheat supplies are expected to decline to 114.8 million tonnes by next May, according to the US Department of Agriculture..

(c) 2007 Evening Standard; London (UK). Provided by ProQuest Information and Learning. All rights Reserved.