Top-grade US wheat prices soar

Top-grade US wheat prices soar

By Javier Blas in London

Published: January 29 2008 22:01 | Last updated: January 29 2008 22:01

Prices for top-quality US wheat jumped to a record high on Tuesday, extending their gains over the past two months to 40 per cent as demand from emerging countries was boosted by weakness in the US dollar and sharp declines in freight costs.

High quality spring and winter hard red wheat is in demand from importers because of its high protein content. The recent price rally for hard red wheat has also spilled over into lower quality soft wheat, which is traded in Chicago.

Soft wheat, considered the main benchmark for prices, is used to bake flatbreads, cakes and pastries due to its lower protein content.

At the Minneapolis Grain Exchange on Tuesday, top-quality spring red hard wheat soared by its 30 cents daily trading limit to $13.27 a bushel, more than double its price a year ago.

The wheat price surge has been accompanied by a decline in freight costs, down almost 50 per cent from an all-time peak in November. Traders said that the jump was also exacerbated by panic buying and the shallow liquidity of the Minneapolis market.

Middle East and African countries usually import large amounts of high quality US wheat to complement their local crops of lower quality grain. Japan and other Asian countries also buy top-quality wheat from the US.

Record freight rates last year put some grain exports on hold, while countries including India and Taiwan moved from large capacity bulk vessels to smaller cargos in an effort to lower shipping costs.

The price of hard red winter wheat for March delivery at the Kansas City Board of Trade was up 10 cents at $10.10 a bushel, a rise of nearly 25 per cent over the past two months. Hard red winter wheat’s protein content is not as high as top-quality spring wheat.

US farmers have exported about 14.4m tonnes of spring and winter hard red wheat during the current crop marketing year, accounting for almost 65 per cent of their total foreign sales. Last week, 75 per cent of exports were of top-quality wheat.

The rise in export demand comes as the US Department of Agriculture has forecast that top-quality wheat inventories will fall to the lowest level in at least 30 years before the arrival of the next crop, which is expected in summer.

Supply tightness in the top quality wheat market has been aggravated by drought in the key US growing area for hard red winter wheat. In spite of record prices, US farmers sowed less of this wheat variety in the autumn than a year previous.

Greg Wagner, of Horizon Strategies in Chicago, said the disappointing expansion in land devoted to hard red winter wheat provided a trigger for the price rally in spring wheat. Recent price action also provided a clear indication that competition for land between wheat, soyabean and corn can be expected to intensify in 2008.

“It is an absolute necessity to secure more acreage for high protein wheat or prices will need to rise high enough in order to ration demand,” said Mr Wagner.

In Chicago, lower quality soft wheat for March delivery fell 10 cents to $9.53 a bushel, below its recent all-time high of $10.09 a bushel.