News 169 views last update:6 Aug 2012

Market panics on low wheat stocks

Global wheat prices skyrocket due to low stocks and risk of drought affecting the US crop. As a result in Chicago the price per bushel passed the $10 threshold for the first time.

In a year time the price for a bushel (app. 27 kg) of wheat has doubled. This not only has an effect on food prices, but also feed prices skyrocket. Next to that farmers are feeling the pinch with the soaring cost of agro-chemicals, including fertilisers, pesticides and herbicides.

Rising demand for grain has created worldwide shortages of nitrate fertilisers. Urea for example rose from $225 to $420 per tonne in a year's time and prices of ammonium phosphate rose 150%. Speculators are driving up the wheat price as well, because of fears of a drought in the US that might cause a lower wheat harvest.

Low stocks
There are several reasons for the current unusually low level of wheat stocks:
· A lengthy drought in Australia causing its harvest to fail
· Elimination of EU intervention stocks and rising demand.
· Higher meat consumption in Asia causing higher demand for animal feed
· Biofuel manufacturers now also compete on the grain market.

Food prices in China increased 18% in November. To halt this inflation Beijing is scrapping a tax rebate on exports of grains, including corn, wheat, rice and soybean, in an attempt to curb domestic price surges. India failed to secure sufficient bids from grain merchants to meet a tender for 350,000 tonnes of wheat. The total bid amounted to 330,000 at exceptionally high prices ($460-$580 per tonne).

The Indian Government is building up emergency stocks but the global wheat shortage has provoked panic buying by government agencies in Asia, the Middle East and North Africa.

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Source: Times Online

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