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Indian imports may push up wheat prices further

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Date: Tuesday 26 Feb 2008

LONDON (ShareCast) - A drop in India’s wheat crop means it is likely to have to import the grain this year, which is likely to push up further already-soaring prices.

The New Delhi office of the US Foreign Agricultural Service said India’s wheat production may fall to 74.5m tonnes from a record crop of 75.8m tonnes last year, leading to possible imports of 2m tonnes in the year from July 1.

The news comes as wheat prices surpassed the $12 a bushel on the Chicago Board of Trade (Cbot) for the first time ever.

Wheat for May delivery hit $12.145 a bushel in overnight trading at the Cbot. The price of the grain has surged in recent months after drought in large wheat-exporting countries such as Australia diverted demand to other exporting countries including the US.

The US struggles to meet this demand, particularly as demand for biofuels encourages farmers to devote their land to growing corn, which is used to make bioethanol, rather than other grains.

High wheat prices have encouraged wheat-producing countries, fearful of food inflation, to restrict exports of the grain. Kazakhstan has announced plans to impose customs tariffs on grain exports from March. Argentina and Russia have restricted grain exports.

As well as being an ingredient for human food products such as bread, wheat is used in animal feed and to a lesser extent to make biofuels.

Corn and soybean prices, which tend to rise in line with wheat and other grains, have also soared, reaching record levels.

Cbot corn for May delivery reached $5.555 a bushel, while soybeans for May hit $14.855 a bushel.

Corn is used to make animal feed and bioethanol. Soybeans are turned into soymeal for animal feed and soya oil, which is used for cooking and to make biodiesel.