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Drought, floods place wheat futures in peril

Thursday, February 10, 2011

Wheat futures have increased 72 percent in the past year in part because demand supersedes supply.
Wheat futures have increased 72 percent in the past year in part because demand supersedes supply.

Demand for wheat is forecast to supersede harvests for the second straight year, which raises the likelihood of hoarding and further price gains, Bloomberg reports.

During the past year, wheat futures have soared 72 percent, a boost that is largely attributable to inclement weather savaging crops of the grain, either by drought or by flooding.

"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, told Bloomberg. "We need at least a 3 percent to 4 percent increase in total wheat production."

The shortfall stands to benefit American farmers. As they exporting more grain to world markets, they will see larger returns for impact profits and equipment expenditures.

China, the globe's top grower of wheat, is staring directly into a perilous scenario that has alerted the agriculture ministry.

About 42 percent of China's wheat crop is projected to be damaged by drought that is forecast to endure for several more months, according to Han Changfu, China's agriculture minister. The United Nations Food and Agriculture Organization reported the amount of rain that has fallen on North China since October is uncommonly low.

"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."

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