UN Sees Risk of ‘Widespread’ Hoarding, Wheat Gains

Global wheat harvests may trail demand for a second year, spurring hoarding and further price gains, said the United Nations.

“Whenever you get the market as tight as we are now, hoarding becomes widespread,” Abdolreza Abbassian, a senior economist at the UN Food and Agriculture Organization in Rome, said in an interview.

Wheat, corn and soybeans soared to the highest levels since 2008 yesterday as a U.S. government report showed smaller crops and rising demand are eroding global inventories. Governments from Beijing to Belgrade are raising imports, limiting exports or releasing supply from stockpiles to curb inflation. Wheat in Chicago, the global benchmark, soared 73 percent in the past year as drought and floods ruined crops. Dry weather threatens production in China, the top producer.

“We need at least a 3 percent to 4 percent increase in total wheat production,” Abbassian said yesterday. The drought in China may cut the chance of replenishing world stockpiles, he said. Inventories may drop 6.4 percent this year, FAO data show.

About 42 percent of the total area planted with wheat in China’s eight major producing provinces has been hurt by a dry spell that may last into the spring, Minister of Agriculture Han Changfu said in a statement yesterday. Rain on the North China Plain has been “substantially” below-normal since October, according to the FAO on Feb. 8.

Wheat prices may keep rising until the next harvest as importers speed up purchases to cool inflation, Abbassian said. The chances of them staying high or extending gains are stronger than for a decline in the next six months, he said.

Food Costs

Higher prices of wheat, rice, sugar and dairy products helped push the FAO’s Food Price Index to a record for a second straight month in January, stoking inflation in emerging economies. The past month’s protests in North Africa and the Middle East were partly linked to food costs.

China’s consumer prices advanced 3.3 percent last year, breaching a government target of 3 percent. The January rate may have accelerated to 5.4 percent, according to the median estimate of 26 economists surveyed by Bloomberg, from 4.6 percent in December. Inflation inIndonesia, Southeast Asia’s biggest economy, hit a 21-month high of 7.02 percent last month.

The People’s Bank of China on Feb. 8 raised the one-year lending rate by 0.25 percentage point to 6.06 percent and the one-year deposit rate an equivalent amount to 3 percent.

Shandong, Henan

The provinces hit hardest in China are Shandong, Jiangsu, Henan, Hebei and Shanxi, providing 67 percent of production in 2009, the FAO said on Feb. 8. China has 14 million hectares (34.6 million acres) planted with winter wheat in those areas, of which about 5.16 million hectares may have been hurt, it said.

China is the largest wheat consumer, representing about 17 percent of global use in the year to June 30, according to data from the London-based International Grains Council. The country’s wheat output may have dropped to 114.5 million tons at the last harvest from 115.1 million tons a year earlier, the USDA estimates. Macquarie Group Ltd. expects production to drop a further 4 million tons this year.

“For a country as big as China showing some early problems, it’s not very encouraging,” Abbassian said. “We decided to flag out China early to give signals to other countries. For spring planting, it could affect decision-making.”

Planting Response

China’s potential for increased imports in the year from July 1 may spur U.S. and European farmers to plant more at the expense of other crops, he said. Increased acres and normal weather in Russia may more than compensate for potential losses in China, helping rebuild inventories, he said.

Global wheat production will probably drop 4.3 percent to 653 million tons in 2010-2011 from the previous year, while demand may expand 1.2 percent to 667 million tons, the FAO said in December. The U.S. Department of Agriculture estimates output at 645.4 million tons and demand at 665.2 million tons. Without a sufficient increase in plantings and normal weather, output may lag behind demand in 2011-2012, he said.

Wheat for March delivery traded at $8.7875 a bushel in Chicago today after climbing to $8.9325 a bushel yesterday, the highest price for the most active contract since August 2008.

(Source: http://www.bloomberg.com/news/2011-02-10/un-sees-risk-of-widespread-hoarding-as-wheat-prices-jump-on-china-drought.html)