Wheat at new peak on good demand

Wheat rose to a record, increasing by the daily trading limit for a second day, as importers raced to lock in supplies and concern mounted that Australia's harvest may be smaller than expected.

India, the world's second-biggest consumer of the grain, South Korea and Taiwan all bought wheat this week, and Egypt and Japan plan to purchase the grain. Output in Australia may be 16 million tonnes, 29 per cent below a federal government forecast, a state minister said today.

Wheat futures for December delivery rose as much as 30 cents, the maximum allowed by the exchange, to $8.355 a bushel in after-hours electronic trading on the Chicago Board of Trade. The contract, which has risen more than a third in the past two months, was still 3.7 per cent higher at 10:38 am in London.

"It's a combination of continued strong demand globally and locally, together with production concerns around the world,'' Mark Lewis, a grain trader with Lempriere Grain, said from Victoria state, Australia.

Prices have surged 67 per cent this year as demand outpaces supply, eroding inventories. World supplies are expected to decline to the lowest since 1982 as adverse weather hurt crops in Europe, the US, Canada and Australia.

The harvest in Australia may be 1-2 million tonnes below recent market estimates of 18 million tonnes after hot and windy weather this week damaged crops in Western Australia, Kim Chance, the state's minister for agriculture and food said.

The federal government's commodity forecaster in June estimated the crop at 22.5 million tonnes.

In Argentina, South America's biggest wheat producer, output is expected to be 14 million tonnes by May 31, 7.9 per cent less than a year earlier, the US Department of Agriculture said August 10.

Dry, cold weather hurt recently planted crops and impeded farmers from sowing in some areas, the government said September 3.

"It's fairly scary in terms of global production,'' Lempriere's Lewis said. "There's no reason why prices couldn't go higher if conditions remain dry'' in Australia, he said.

"There's talk in the market that some state-owned trading firms are eager to export some wheat, because global prices are twice as high as domestic prices,'' Sun Rui, a Beijing-based trader with Cofco, said.

Global supplies of wheat are expected to decline to 114.8 million tonnes by the end of the marketing year on May 31, 2008, the US Department of Agriculture said last month.