x Abu Dhabi, UAESunday 21 January 2018

Concern grows over soaring wheat prices

Wheat prices skyrocket after the US experiences the worst drought in generations.

Does a dry summer in Colorado mean yet more political hurricanes in the Middle East?

The worst drought in the United States since 1956 has led to falling production forecasts and soaring wheat prices. US wheat futures are up 50.3 per cent in the past month to 943.25 US cents per bushel.

A crucial staple crop in the Middle East, the soaring price of wheat was one factor that contributed to instability throughout the region during the Arab Spring.

With prices now at an 11-month high and expected to remain at current elevated levels, wheat is expected to put further pressure on consumer prices, said Muktadir Ur Rahman, a commodities economist at Capital Economics.

"From an inflation perspective, there will be some impact immediately expected, compared to 2011," he said.

Despite Capital's "sanguine" outlook for wheat prices globally, regions that supply the Middle East are lowering their production forecasts.

"Big exporter nations of the Black Sea region have cut their production forecasts for wheat," he said.

Agricultural production in the Middle East is looking unsteady this year, with Morocco's grain harvest giving analysts cause for concern.

Morocco's combined production of soft wheat, durum wheat and barley fell 39.1 per cent during the current harvest season compared with a year earlier, according to the ministry of agriculture. For countries where food prices inflamed political unrest last year, such as Tunisia, the price of wheat imports may be increasingly problematic.

The Islamic Development Bank this month loaned US$1 billion to the Egyptian government to finance wheat and fuel imports.

For now, the rise in wheat prices is likely to put food security at the top of the agendas of newly elected governments, such as Egypt's, and ensure import demand remains strong, said Nick Higgins, a commodity analyst at Rabobank in London.

"The last thing that the Egyptian government can afford is food riots," he said.