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The last stands of wheat remain before being harvested by the Sawyer family near Acme, Alta., in September, 2009. (TODD KOROL/REUTERS)
The last stands of wheat remain before being harvested by the Sawyer family near Acme, Alta., in September, 2009. (TODD KOROL/REUTERS)

Wheat turmoil hits home on the Prairies Add to ...

On the family farm in Saskatchewan, Dale Johnson marvels at how quickly the price has risen for the crop in his fields.

In three weeks, Mr. Johnson plans to start harvesting 1,000 acres of wheat , a task that will stretch well into September. But the prospect of new crops hasn't been enough to halt worries about a wheat shortage on the planet - worries that have driven up world wheat prices more than 60 per cent since early June.

Wheat prices have hit their highest point since the fall of 2008, amid a rally triggered by heavy rains in June that flooded parts of the Prairies to damage fields and a summer drought in Russia that has dampened production forecasts. Those factors helped send benchmark wheat contracts up another 6.7 per cent Wednesday to surpass $7.25 (U.S.) a bushel.

On Wednesday, the United Nations' Food and Agriculture Organization sought to soothe nervousness over a shortfall of wheat, playing down concerns about a repeat of the global food crisis of 2007-08.

"A continuing, devastating drought afflicting crops in the Russian Federation, coupled with anticipated lower outputs in Kazakhstan and Ukraine, have raised strong fears about the availability of world wheat supply in the 2010-11 marketing season," the UN agency said. "An expected production decline in Canada, another major producer and exporter of wheat, has reinforced market worries."

But the UN agency said stockpiles remain healthy after two consecutive years of bumper crops and offered assurances that "world inventories have been replenished sufficiently to cover the current anticipated production shortfall."

In Kipling, about 150 kilometres southeast of Regina, Mr. Johnson surveyed his wheat while talking on his BlackBerry. The 36-year-old farmer managed to seed 80 per cent of his crop, while a less-fortunate neighbour managed only 20 per cent, forced to leave the rest unplanted because of excessively wet soil.

"The higher prices are going to help our family," said Mr. Johnson, whose great-grandfather homesteaded in the area in 1905. "There are ups and downs, and the trick is to have enough good years to operate through the bad ones."

Viterra Inc. , the Regina-based grain handling and agri-products company, recently estimated that total seeded acreage in Western Canada ranged from 50 to 52 million, compared with the five-year average of 60 million acres. David Boyes, a commodity risk manager at the Canadian Wheat Board, said Canada's projected export target for volumes of bulk grain for the 2010-11 crop year will be the lowest since 2004-05. The new crop year began Aug. 1.

"Around harvest time, there should normally be lower wheat prices because you will have all the new supplies coming in, so this price increase is unusual," Mr. Boyes said from Winnipeg. "This latest price spike has caught a lot of market participants by surprise. Two of the world's largest exporters have experienced production challenges. It has been too wet in Western Canada and too dry in Russia, meaning greater exports from the United States."

The sharpness of the price jump in wheat stems in part from speculators, say industry experts, who point out that global production is forecast to dip 3.7 per cent this year - a relatively small decline, considering wheat prices have skyrocketed.

"Speculators are adding to the volatility in the wheat trading pits," Mr. Boyes said. "You have these big commodity funds over the past three to five years, these non-agricultural traders who are participating in wheat futures trading, not just millers, bakers, farmers and grain companies."

Canadian bakeries say they have yet to be affected by higher wheat costs. But in the 2008 crisis, higher bills for flour translated into price increases of about 50 cents a loaf, raising the retail price to $3 (Canadian). Consumer bread prices fell as the recession hit later in 2008, and wheat prices collapsed from record highs.

"The run-up in wheat was a huge issue in 2008," said Paul Hetherington, president of the Baking Association of Canada. "The challenge for any business, and baking is no different, is you're faced with price fluctuations and what costs can be absorbed and what has to be passed along in the price of goods."



Wet weather in Western Canada destroyed crops or prevented planting.

Drought in Russia and much of Europe's grain belt.

Buyers and sellers

Biggest wheat exporters

1. U.S.

2. Canada

3. France

Biggest wheat consumers

1. China

2. India

3. Russia

Biggest wheat producers

1. China

2. India

3. U.S.

4. France

5. Russia

6. Canada

Sources: USDA, Spectrum Commodities

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