One man’s famine is another man’s feast — though in this case, it looks like many of us will have to take another look at the Atkins diet.
With soaring demand from key regions of the world and supply problems such as Russia’s drought and India’s grain storage crisis, wheat is rapidly becoming the “gold” of the grain markets. Prices have seen the biggest one-month jump in more than three decades.
As the FT reports on Tuesday, the severity of the drought hitting Russia and surrounding regions and other wheat supply problems elsewhere has prompted food industry executives to warn of an imminent rise in prices for flour-related products such as bread and biscuits.
And it’s not just wheat products. Celiacs take note. Other knock-on effects, according to the FT report, include the possibility of surging prices for feeding and malting barley, which could in turn push up the retail cost of products from poultry to beer.
As the FT notes:
European wheat prices jumped 8 per cent on Monday to €211 a tonne, the highest in two years. Wheat prices have risen nearly 50 per cent since late June. Crop failures and a price rally have revived memories of the 2007-08 global food crisis, which saw the cost of agricultural commodities from corn to rice surge to record highs and food riots in countries from Haiti to Bangladesh.
At the heart of the wheat crisis is the worst heatwave and drought in more than a century in Russia, Ukraine and Kazakhstan, devastating their crops.
The trio, as the FT explains, are among the world’s top-10 wheat exporters and key suppliers to countries in North Africa and the Middle East – the world’s largest wheat-importing regions. And now, executives and traders fear that the three countries could restrict grain exports or even impose an export ban in efforts to keep their local market well supplied and prices low.
The FT adds that wheat traders and analysts estimate that Russia’s wheat production could drop in 2010-11 to 45-50m tonnes, down as much as 27 per cent from last season’s 61.7m tonnes.
And that’s not all. Canada – another top wheat producer – is experiencing the opposite problem. Heavy rains during the planting season has prompted the Canadian Wheat Board, the marketing agency for the country’s farmers, to forecast a drop of 35 per cent in the wheat harvest.
It all makes the surprise move last Friday by GrainCorp, one of Australia’s largest grain handling and storage groups, to buy AWB, Australia’s largest wheat exporter, for A$856m ($769m) look very timely indeed.
As FT Alphaville noted, with wheat supply and demand going the way it is, the Graincorp deal, coming amid a rising wave of interest in agricultural M&A, might also be the first of many mergers in the sector.
Related links:
Wheat - Lex
Bullish food forecasts whet investors’ appetite - FT
Graincorp to buy AWB for $803m to supply Asia - Bloomberg
Worst Russian drought in 50 years threatens next crop – Bloomberg