As wheat prices soar brewer and food firm stocks slump.

As wheat prices soar brewer and food firm stocks slump.

Moscow : Russia | Aug 08, 2010 at 8:22 AM PDT
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Commodity trading

There are fears that rising wheat prices will increase input costs for brewers and food producers and shave profit margins.

This week alone wheat prices rose 25 per cent as drought and wild fires devastate crops in Eastern Europe and Russia. Russia has banned export of grain.

Shares in Danish brewer Carlsberg fell 5.1%, while Diageo, which owns brands such as Guinness, shed 2.2%, and Associated British Foods fell 1.5%.

The panic about wheat prices is played down by the Food and Agriculture Organization even though it has cut its global wheat production forecast.

That's largely because global wheat stocks have risen substantially in the past couple of years, peaking in June at just under 194 million tonnes, according to US government estimates. While stocks are down now to 187 million tonnes it is still a large amount offsetting the conditions in Russia and to some extent in Canada as well where weather delayed seeding. These substantial stocks should prevent sudden rises in food prices which might cause social unrest in some countries. However market movement of prices sometimes does not reflect underlying realities and hence buyers and sellers could panic and move wheat prices up even though there is no shortage of wheat. Countries such as Egypt which imported a great deal of wheat from Russia could face very high prices as they seek alternative suppliers.

In the U.S. the wheat crop looks good.

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Russian wheat field burns
Wildfires and drought have devastated the Russian harvest.
northsunm32 is based in Brandon, Manitoba, Canada, and is an Anchor on Allvoices.
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