Wheat Jumps to Highest Since 2008 as Drought May Harm China Crop

Wheat climbed to the highest level since August 2008 as drought threatened to damage crops in China, curbing global supplies, and Middle Eastern and African nations boosted purchases to tackle food inflation. Corn and soybeans also advanced.

The March-delivery contract climbed as much as 0.8 percent to $8.815 a bushel, the highest price for the most-active contract on the Chicago Board of Trade since Aug. 25, 2008. The grain traded at $8.775 per bushel at 12:58 p.m. in Singapore.

Wheat has surged 82 percent in the past year as drought in Russia, floods in Canada and parched fields across Europe hurt crops. Countries in the Middle East and North Africa are accelerating grain purchases as rising food prices contributed to riots and protests. China, the largest wheat producer, is facing severe drought in the main, winter-wheat growing region.

“Wheat is at the center of issues for the market now,” said Han Sung Min, a broker at Korea Exchange Bank Futures Co. in Seoul. “China’s poor crop weather has fueled concern over tightening supplies after some countries in North Africa and the Middle East rushed to secure food.”

World food prices rose to a record in January, the United Nations’ Food & Agriculture Organization said on Feb. 3. China raised interest rates for the third time in four months, effective from today, to contain inflation.

Drought Warning

The drought in China’s wheat-growing regions may worsen “rapidly” as the weather gets warmer, the Ministry of Agriculture said on Feb. 4. The drought affected 35 percent of wheat crops in eight provinces as of Feb. 4, it said.

Wheat jumped as much as 6.5 percent to a record 3,048 yuan ($463) a metric ton on China’s Zhengzhou Commodity Exchange, which reopened for trade today after the Lunar New Year break.

Chinese wheat output may have dropped to 114.5 million tons at the last harvest, compared with 115.1 million tons a year earlier, according to U.S. Department of Agriculture estimates. Macquarie expects output to drop a further 4 million tons this year. The USDA will update its outlook today.

U.S. wheat reserves on May 31 probably will total 808.3 million bushels, compared with 818 million forecast in January and 976 million a year earlier, a Bloomberg survey showed. World wheat inventories may decline to 177.2 million tons, a survey found, from 178 million estimated by the USDA in January and 197.4 million a year earlier.

The USDA may cut its forecast for world corn inventories before the northern hemisphere harvests to 125.4 million tons, from 127 million estimated in January and 147.1 million a year earlier, the survey showed. Reserves would fall to the lowest since 2007.

March-delivery corn rose as much as 0.6 percent to $6.78 a bushel and was at $6.7575 at 12:26 p.m. in Singapore. The price reached $6.825 on Feb. 7, the highest since July 15, 2008.

Soybeans for March delivery gained as much as 0.5 percent to $14.415 a bushel and last traded at $14.3675. The price touched $14.525 on Feb. 3, the highest since July 2008.

(Source: http://www.bloomberg.com/news/2011-02-09/wheat-advances-nearing-29-month-high-as-drought-threatens-china-crops.html)