Wheat has suddenly become an important item on the menu of the Middle East.
Algeria put in an order for 800,000 tonnes of it last week, bringing its total purchases for January to 1 million tonnes. Jordan, Turkey, Libya, Iraq, Qatar, Morocco and Lebanon have also been major buyers recently, and Bangladesh has said it will double its 2011 target for wheat purchases in order to curb domestic prices.
Much of the recent political rancour across North Africa, though, has been sparked in part by rising food prices. Worried about the political price of bread, governments across the region are afraid that rising food prices could spark Egyptian-like protests in their own countries, so they are scrambling to buy wheat and rice to keep domestic food stocks well supplied and food prices under control.
"Hoarding of agricultural products" including wheat and rice "will intensify" following riots that unseated Tunisia's president and protests in Egypt, Goldman Sachs Group Inc., predicts in a report Monday.
And the price of hoarding is only going to go higher. The United Nations' Food and Agricultural Organization, or FAO, will announce its monthly food price index on Thursday: the figures are expected to show global food prices remain at all-time highs - and could go higher.
The FAO's index is a formula based on the wholesale price of 55 products including rice, meat, wheat, milk and cheese. It hit a record high in December, surpassing the level reached in June, 2008, when soaring food prices prompted riots in several countries, including Egypt.
"My feeling is that [the index]is not going to be significantly different from December," FAO economist Abdolreza Abbassian said in an interview from Rome. "There is nothing I would say in terms of fundamentals that changed so drastically that would give us something much better. That is for sure."
Mr. Abbassian has described the December index as "entering a danger territory."
Prices for many food staples including wheat were already under pressure before the protests broke out in Tunisia, Egypt and elsewhere. Poor crops in major grain exporting countries such as Russia, Canada, Ukraine and Australia had left grain markets tight and moved many prices upward since last fall.
The tightened supply, combined with the buying spree, has sent prices for some commodities even higher. Wheat prices on the Chicago Board of Trade jumped nearly 6 per cent in January, something not seen for that month since 1993, and prices have climbed 77 per cent in the last 12 months.
Rice had been one of the few agricultural crops that had not seen major price increases in 2010, due mainly to improved crops. In December, the FAO had touted the relatively low price of rice as a bright spot for developing countries that rely heavily on the grain to feed their populations. But now rice is also moving up as governments buy up whatever food they can to prevent rioting; its price jumped by the maximum amount allowed on the Chicago Board of Trade Monday and it went up 8 per cent last month, the most for January since 2003.
"The dominant fear remains that of Egyptian-style protests spreading through the Middle East," said a report released Monday from Bank of Nova Scotia economists Derek Holt and Gorica Djeric.
"But what caused the crisis could also be what cures it," the report said. "[We]doubt the immediate catalyst was that people suddenly woke up after decades of rule by often ruthless and oppressive dictatorships and suddenly demanded freedom. Spikes in food and gasoline prices created significant malcontent, and a sudden focus on efforts to contain such prices could be what quells contagion risk. Efforts toward heading off price increases and increasing subsidies or rebates are under way."
One more variable is the Suez Canal. Wheat prices could also still go higher because Egypt, the world's largest buyer of the grain, also controls the waterway, a vital shipping route for commodities that include agricultural goods and oil.
Maureen Fitzhenry, a spokeswoman for the Canadian Wheat Board, said that "the impact of this unrest on world grain markets will be limited if the flow of grains is maintained. However, if the Suez Canal is closed for any reasons," she added, "it will have a negative impact on grain markets."
With a report from BloombergReport Typo/Error