Grain pains

Napoleon, so the story goes, shortened the length of the baguette due to worries about excess consumption. Record high wheat prices on global commodity markets may see the French stick of bread shrink even further.

In any case, there will probably be a tangible change in the price of a loaf of bread everywhere in the world this winter. Wheat prices across the United States and Europe have hit their highest levels in more than a decade and show no sign of abating. These price hikes are likely to trigger inflation in food prices, as processors are forced to pay increased costs for basic ingredients.

Bad weather in key grain growing areas has limited supplies as demand has risen, sparking fears of a supply shortfall. Global wheat stockpiles are set to slip to their lowest levels in 26 years.

According to the World Agricultural Outlook Board, reduced production in Europe, the United States, Canada, Turkey, and Brazil will more than offset good harvests in India and the countries of the former Soviet Union.  Persistent, heavy rain during harvest has reduced yield prospects in France and Germany, and prolonged drought and heat has had the same effect in Bulgaria, Hungary, and Romania.  Production for Canada is projected to be 1 million tons lower for 2007/8 as hot, dry weather in July reduced prospects for spring wheat in Alberta and Saskatchewan. 

As supplies fall, demand from emerging economies such as India is increasing -- factors which pushed wheat for December 2007 delivery as high as $7.45 per bushel on the benchmark Chicago Board of Trade market last week. The increase could also trigger an increase in meat and dairy prices as farmers battle to pass on rising feed costs. Good news for wheat growers, bad news for baguette lovers.