Wheat and corn based ingredients open to price rise

Related tags Wheat Maize

Price increases for key raw materials used by the food industry
threaten over the next 12 months as low global stocks remain open
to unexpected disruptions.

Wheat and corn inventories are still exceptionally low with the US government recently predicting that global wheat stocks-to-use ratio will rise by just four days to 86 days of cover in 2004/05 - the second lowest global inventory in 30 years. This figure compares to 1999/00 when cover hit 131 days.

Despite the low stocks, prices are currently down by more than 25 per cent from the highs earlier this year that bit into the margins for ingredients and other food firms.

But putting pressure on the inventories, the Chinese government is likely to take advantage of the sharp decline in prices to rebuild its stocks of wheat, which have fallen sharply.

Wheat prices are also vulnerable to Australian and Canadian wheat production that could fall short of expectations.

Wheat, along with corn and soy, are the starting point for a range of food ingredients, from starch to gluten, used widely in food applications. But food makers and ingredients firms across the world have been affected by rising prices for basic food commodities.

In each of the last four years world grain production has fallen short of consumption, forcing a draw-down of global stocks for wheat, rice, corn and soybeans. Soybean prices recently hit 15-year highs and wheat and corn seven-year highs.

The November WASDE report from the US government predicts the projected price range for wheat as rising 10 cents on the lower end of the range to $3.20 to $3.50 per bushel.

While wheat and corn remain vulnerable, a report this week from investment bank Goldman Sachs claims expectations of 'extremely high US and global soybean inventories' over the next year could bring stability to the price.

This, despite the recent discovery of soybean rust in the US and the ensuing 'modest supply' disruption. Potentially devastating, the plant disease was detected after harvest, minimising the impact on this year's crop, although observers will closely monitor the situation in the next 12 months.

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