According to Barclays Capital, wheat futures still have more room to rise and will be the best-performing agricultural commodity this year, reported Bloomberg News on Friday. The drought which has devastated the wheat harvest in Russia’s Black Sea region will continue to create a “ripple effect” that will disrupt grain markets worldwide.
September wheat futures actually declined slightly on Friday, slipping 2.4 cents to $7.104 per bushel. However, longer-term futures gained; wheat for March 2011 delivery gained 3.4 cents to $7.596.
Barclays sees a potential for wheat to reach $9 per bushel by year’s end; a boon for producers, but a potential source of pain for consumers, particularly in poorer emerging markets. Wheat hit a low of $4.225 per bushel just a few months ago, on June 9. Since then, the price of the grain has increased by 75 percent.
“With wheat being at the start of the food chain, fears of a contagion in food prices are more understandable,” HSBC economists wrote in an Aug. 9 report cited by Bloomberg. “If it starts to affect the price of foodstuffs more broadly, we may be in for more of a problem.”
Some of those commodities also gained today; corn rose 1.42 percent to trade at $4.2775 per bushel, while soybeans climbed 13.5 cents to $10.42 per bushel.
Price contagion would mean that other food prices would rise in sync with wheat, including corn, soy and sugar futures. In 2007 and 2008, a similar rise in the price of food staples led to shortages, riots and famine. At that time, though, rising oil prices combined with drought, leading to higher input costs and shortages. The increasing usage of corn and other foodstuffs in the production of ethanol fuel was another culprit.
In 2010, the main problem has been weather: Torrential rains soaked the Canadian wheat crop; an unusually heavy monsoon season and devastating flooding has killed thousands and ruined countless acres of crops in Pakistan; and searing heat combined with drought has parched Russia.
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