Wheat prices soar as US crops go to fill demand elsewhere

Costs hit record and analysts say grain shortage is possible

Higher what prices won't immediately translate into a spike in retail prices for bread, cereal, or cookies, but consumers should expect higher prices will eventually work their way into the grocery aisle. (Douglas C. Pizac/Associated Press/File 2007)

NEW YORK - Wheat prices surged above $10 a bushel for the first time ever yesterday amid concerns that strong demand globally could result in a grain shortage in the United States next year - worsening food price inflation.

Other commodities markets mostly declined, with energy, other agricultural futures, and metals moving lower.

Wheat supplies in the United States have dwindled this year as one wheat crop after another around the world has been damaged by poor weather, most recently in Australia and Argentina. That's sent buyers scrambling for stockpiles at any cost. US wheat exporters already have sold more than 90 percent of the 1.175 billion bushels the Department of Agriculture expects will be exported during the whole marketing year, which ends in June 2008.

Wheat prices crossing the $10 a bushel threshold won't immediately translate into a spike in retail prices for bread, cereal, cookies, and other products, experts say. That's partly because companies like Kellogg Co., General Mills Inc., ConAgra Foods Inc., and Kraft Foods Inc. typically protect themselves from price volatility with long-term supply contracts. But analysts say consumers should expect that higher wheat prices will eventually work their way into the grocery aisle.

A bushel of wheat for March delivery surged to a record $10.095 on the Chicago Board of Trade early yesterday before settling at $9.66 a bushel as profit-taking set in. Wheat prices have hit a record high each of the past three trading sessions and have doubled since the start of the year, when wheat traded at about $5 a bushel.

Food prices rose at a 4.1 percent annual rate in the three months ended in November largely due to milk, egg, and meat prices, according to the Labor Department's latest index of consumer prices. Wheat, corn, and soybeans are used to feed livestock; as those costs go up, so does the retail cost to consumers.

The worldwide wheat shortage has contributed to the inflation, but so have a host of other factors, said Darrel Good, agricultural economist with the University of Illinois. Biofuels production has pushed up corn and soybean prices. Meanwhile, the price of vegetable oils used in packaged foods and biodiesel has followed the price of crude oil sharply higher.

"It's a combination of all of the above factors, which are coming together at this point," Good said.

Unprecedented demand for agricultural products from fast-growing countries including China and India has exacerbated the supply crunch. In the market panics of previous years, prices would rise to a level that developing countries couldn't afford. But it's not clear where that peak level lies now, said Mark Schultz, chief analyst with Northstar Commodity.