Wheat Surges to Record on Supply Concerns

By Aya Takada

Feb. 6 (Bloomberg) — Wheat surged to a record in Chicago, leading
other grains and oilseeds higher, on shrinking U.S. and Canadian
supplies of high-protein varieties used for bread and pasta.

Canada, the largest wheat exporter after the U.S., said yesterday
its inventories of the grain plunged by almost a third after adverse
weather hurt crops. U.S. spring-wheat inventories will total 88
million bushels on May 31, down 25 percent from a year earlier,
according to government forecasts.

The jump in grain prices may increase costs for food producers,
including Kellogg Co. and General Mills Inc., the largest U.S.
cereal makers. It also risks stoking inflation and making it more
difficult for central bankers around the world to stave off
recession by cutting interest rates.

“Wheat prices just continue to explode higher,” Simon Roberts,
head of agricultural commodities at Australia and New Zealand
Banking Group Ltd., said today in an interview with Bloomberg
Television.

Chicago Board of Trade wheat futures rose by the exchange- imposed
daily limit of 30 cents for a third day. The March- delivery
contract was 3 percent higher at $10.33 a bushel in after-hours
electronic trading as of 11:59 a.m. local time in London, beating
the previous record of $10.095 set Dec. 17.

“Reduced supplies in Canada prompted wheat buyers to seek
alternative supplies in the U.S., leading to a drawdown in U.S.
inventories,” Kenji Kobayashi, an analyst at Kanetsu Asset
Management Co. in Tokyo, said by phone.

Milling wheat for March delivery rose 11.25 euros, or 4.3 percent,
to 271.75 euros ($397) a metric ton as of 1:01 p.m. local time in
Paris. The contract has gained 9.7 percent this year.

Wheat Futures

In the past year, Chicago wheat futures more than doubled and in
Minneapolis, where spring wheat trades, prices almost tripled. On
the Minneapolis Grain Exchange, wheat for May delivery rose the
daily limit of 30 cents, or 2.3 percent, to $13.6475 a bushel. The
contract has gained the exchange-imposed maximum in seven of the
past nine sessions.

Wheat has gained 17 percent this year, outperforming crude oil and
copper, as prices of industrial commodities were capped by concern
that slowing economies may curve demand.

U.S. demand isn’t affected by a slowdown in the economy as the grain
is a staple food, said Nobuyuki Chino, president of Tokyo-based
grain trading company Unipac Grain Ltd.

“People without much money to spend tend to eat grains more, as
meat and other more expensive products are not affordable,” Chino
said by phone today.

Overseas demand for U.S. wheat is also rising because of reduced
supplies in rival exporters such as Australia, Chino said.

Asian Buyers

“High prices just do not deter demand at the moment,” said ANZ’s
Roberts. “We’re seeing Asian buyers lining up.”

The surge in wheat prices so far hasn’t led to “a huge increase in
plantings” in North America and weather in the northern hemisphere
summer could still hurt crops, Roberts said.

“Really there is no limit to how high prices can go if we get any
weather problems,” he said.

Kellogg has hedged 70 percent of its commodity costs, the Battle
Creek, Michigan-based company said in a statement yesterday. The
company posted a 3.3 percent profit decline in the fourth quarter
and forecast 2008 earnings that trailed analysts’ estimates because
of higher wheat costs and advertising spending.

Wheat futures were also bought today on speculation U.S. farmers who
normally sow spring varieties may switch to soybeans this year,
Kobayashi at Kanetsu Asset Management said. Soybeans require less
fertilizer than wheat and may be more profitable when harvested in
September and October.

Soybeans Advance

Soybeans for March delivery added as much as 17 cents, or 1.3
percent, to $13.40 a bushel in after-hours electronic trade on the
Chicago Board of Trade, and traded at $13.38 as of 12:19 p.m. in
London. The price of the oilseed reached a record $13.415 a bushel
on Jan. 14.

Corn for March delivery gained as much as 6.75 cents, or 1.3
percent, to $5.16 a bushel, and traded at $5.1325 as of 12:19 p.m.
in London.

“Soybean and corn futures chased the rally in wheat,” Kobayashi
said. Gains were limited as declining energy costs may reduce demand
for biofuels made from the crops, he added.

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