For varying reasons world commodity markets gave us a reminder of the lurking dangers from inflation on Friday, with wheat leading the way with a record price rise. World wheat prices are now at all time highs after the sharpest weekly rise last week in the history of US trade in the grain.
Copper, lead, sugar, copper, gold, platinum, oil and coffee prices rose sharply on Friday on worries about supplies and production in China, poor weather and supply disruptions in the US. These factors overwhelmed continuing fears about slowing economies, especially in the US and an escalation in fears about banks and other credit providers.
Wheat futures for March delivery rose 30 US cents (2.8%) no Friday, on the Chicago Board of Trade, to a record $US10.93 a bushell.
Traders said the price for the March contract (the current most-traded contract), jumped the 30 cent exchange limit for five straight days. The 16% gain ($US1.50 a bushell) last week was the biggest in history.
Prices for Minneapolis wheat (the US variety most suitable for flour-making) jumped 10.7% last week, to take the rise since the start of 2007 to a massive 50%. Driving this was a combination of fears about the size of the current US crop and then news on Friday that US wheat stocks had plunged to a 60-year low.
US traders and commentators say these rises are bad news for food price inflation in the US and around the world and open up the difficult possibility of surging food prices while the US economy is slumping and people are losing jobs and incomes.
The news will be bad for big wheat and flour users, such as fast food groups, bakers, cakes, pasta, meat and retailers. Kelloggs blamed the rising price of corn and wheat for lower than expected earnings last week.
The price rises came after the US Department of Agriculture crop update for January cut estimates for wheat stocks at the end of the 2007-08 marketing year to 272 million bushells, compared with its January estimate of 292 million bushels. The USDA says US stocks at the end of May (the end of the international crop year) will be down 40% from the level at the end of May, 2006.
That will leave stocks at their lowest since 1948. Australian production estimates for the current crop was left unchanged at 13 million tonnes, just over half the initial 25 million tonne estimate. Exports were unchanged from an earlier forecast at 8 million tonnes. Estimated exports in the last crop year in Australia were 8.73 million tonnes.
With good rains across much of NSW, Queensland, parts of Victoria and WA in recent months, the outlook for the new crop later this year will be excellent and we might have a chance of meeting the usual optimistic early forecasts.