International
Heatwaves and biofuel demand in Europe and US to fuel bread, pasta and beer price rises
By Finfacts Team
Jul 24, 2006, 07:44

The combination of heatwaves in Europe and the US, low global grain stocks and an increase in production of biofuels has seen wheat prices rise to 10-year highs and may lead to big increases in the cost of bread and pasta.

The US Agriculture Department has reported that growing conditions for the US spring wheat crop were the worst in 18 years.

Corn and barley prices are also likely to rise, which may push up the cost of beer and breakfast cereals.

The US has had the warmest year on record and Europe has experienced a heatwave that has damaged grain crops at a time when worldwide stocks are relatively low.

The lower barley crop is expected to push up the price of malt, a basic ingredient for beer. Coldiretti, the Italian farmers' body warned last week that hot, dry weather had caused damage worth €100m to crops in northern Italy. It said yields would fall by up to 9 per cent.

The US Agriculture Department has reported that growing conditions for the US spring wheat crop were the worst in 18 years because there was not enough moisture to germinate seeds. A sharp rise in requirements for biofuel is forecast in the next two years as ethanol plants open across Europe and production is ramped-up in the US. Global wheat demand is expected to exceed production this season for the fifth time in six years.

The United Nation's Food and Agriculture Organisation said recently that world cereals stockpiles would fall by 10 per cent to 414m tonnes by the end of the current season in June 2007.

US spring wheat futures hit a 10-year high last week of $5.35 a bushel in the US last week.

Speculators and traders have piled into the soft commodity and UK benchmark November wheat futures rose in value by more than 2 per cent to £84.50 per tonne on Friday, up by 8.5 per cent on the week. UK wheat futures are up by 23 per cent this year and French wheat futures hit €131.25 per tonne last week, a two-year high.

UK wheat futures reached a two-year high of £83.25 a tonne this week, and are up more than 23 per cent this year. French wheat futures also hit a two-year high of €127 a tonne this week.