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19 August 2017
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Wheat rises to record as Ukraine cuts exports

Stockpiles head for the lowest in 26 years

Wheat rose to a record after Ukraine said it will cut exports as importers increase purchases and stockpiles head for the lowest in 26 years, according to Bloomberg.

Ukraine, the world`s seventh-biggest wheat exporter last year, will curb shipments starting Nov. 1 to cap domestic prices. Australia`s worst drought threatens to shrink its crop to 43 percent less than U.S. forecasts. Egypt, Iraq, Japan, Jordan, Morocco and Pakistan this month announced plans to buy the grain.

Wheat futures in Chicago reached as high as $9.3925 a bushel and have more than doubled in the past year. Rising prices are pushing up inflation in Australia and China, while increasing costs for U.S. cereal makers General Mills Inc. and Kellogg Co.

``We can not rule out $10 for wheat,`` said Takaki Shigemoto, an analyst at Okachi & Co. in Tokyo who has been researching grain markets for 25 years. ``Exporters are reducing the amount to curb domestic food prices, while importers are trying to secure as much grain as possible.``

Wheat for December delivery rose as much as 22 cents, or 2.4 percent, on the Chicago Board of Trade and traded at $9.35 in after-hours electronic trading at 1:51 p.m. Singapore time. The contract gained 3.4 percent yesterday.

Russia last week said it could tax grain exports to curb domestic prices. Ukraine and Russia want to hold down inflation before national elections scheduled this year.

Harvests also have been damaged in the U.S., Canada and Africa. World stocks of wheat, which supplies a fifth of the world`s food calories, are set to fall 10 percent to 112.3 million tons in the year to May 31, according to the U.S. Department of Agriculture.

Australian Drought

``Buyers are concerned with getting their hands on the wheat, they are not particularly concerned about prices,`` Tobin Gorey, a commodity strategist at Commonwealth Bank of Australia, said by phone from Sydney. ``Each day that goes by the Australian crop looks worse. I don`t know how high wheat prices can go.``

Australia, expected by the USDA to be the second-biggest exporter of wheat this year, will produce 15.5 million tons of the grain, the Australian Bureau of Agricultural and Resource Economics said last week. The USDA this month earlier predicted Australia would harvest 21 million tons.

``The Australian crop continues to deteriorate, very little rain was recorded in the last two weeks since ABARE released their latest forecast,`` Skye Dixon, agribusiness economist at National Australia Bank Ltd., said by phone today from Melbourne.

Farmers may gather as little as 12 million, she said.

Canada, Africa

Drought also hurt plants in Canada, which is expected by the USDA to export 14 million tons of the grain and tie with Australia as the world`s second-biggest supplier. Dry weather damaged crops in the U.S., the largest shipper, and in Africa.

``There is concern about drought in northern Africa, prompting countries there, including Algeria, to import the grain and push prices higher,`` Shigemoto said.

General Mills, the second-largest cereal maker in the U.S., is increasing prices because of higher expenses, including rising costs for wheat. Nissin Food Products of Japan this month said it will raise prices on its Cup O` Noodles for the first time since 1990, citing a rise in wheat prices.

Advance sales of U.S. wheat have more than doubled since the marketing year began June 1.

Grains represent about 10 percent of the cost of goods at General Mills, which ranks behind Kellogg in cereal sales.

``What makes worse for importers, like Japan, Korea and Taiwan, is record shipping rates,`` Shigemoto said. ``Surging import costs are now the main issue they need to tackle.``

Inflation Concerns

The Baltic Dry Index, an overall measure of commodity shipping costs on different routes and ship sizes, rose to a record of 9,259 yesterday, according to the London-based Baltic Exchange. The measure has more than doubled in the past year.

Central banks including those in China, the U.K. and Australia are struggling to curb inflation and sustain economic growth as prices rose this year for grains including wheat, soybeans and corn and metals including nickel and lead touched all-time highs.

China on Aug. 15 criticized instant noodle makers for ramping up prices of the staple, a necessary food for low-income workers. The country`s August inflation rate soared to a 10-year high of 6.5 percent, driven by an 18 percent jump in food prices.

China, the world`s biggest grain consumer, today said it will cut rail costs to ship cereals from its main northeast production region.

The People`s Bank of China has raised interest rates five times this year to curb inflation and damp speculation in stocks and real estate.

Australia`s consumer prices increased more than expected in the second quarter as fuel, housing and food costs surged. Cattle prices in Australia, the world`s second-biggest beef exporter, have soared about 23 percent this year.

Bloomberg

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