Hunger for Wheat Spurs Investments

03/19/2012 2:40 pm EST

Focus: COMMODITIES

Rising demand, as well as supply concerns, create the perfect environment for large gains in food commodities, writes Laura Miller of The National.

The world population is expected to rise by between 2 billion and 3 billion in the coming years, making staples such as wheat a good long-term investment. In addition, recent demand fears mean the grain is also offering short-term gains now.

Figures in the latest report from the International Grains Council (IGC) support the bullishness about wheat. The IGC notes wheat export prices in Europe climbed 8% last month. Strong demand for wheat as animal feed helped to lift the total wheat trade to 136.8 million tons, matching the 2008-2009 peak.

Total consumption is growing at a faster-than-average rate, according to the report, which should help to keep pressure on supply. Francisco Redruello, Euromonitor International's senior food analyst, says demand for wheat has jumped recently, with strong imports from the Middle East.

Egypt is the second-biggest importer of the grain after Italy. Last month it reported a 120,000-ton wheat purchase from exporters in the United States. Jordan is another big importer, and has tendered to buy 100,000 tons of wheat, its ministry of industry and trade said on its Web site yesterday.

As well as strong demand, there is also some uncertainty about supply. Wheat futures rose to the highest in almost two weeks on Friday, on speculation that rains in the US Midwest will fall short in certain areas.

The UN Food and Agriculture Organization said the World Food Price Index rose 20% in 2009 and 26% in 2010 as the global economy recovered. The gauge, which was at 215.27 last month, reached a record 237.92 in February last year. A decade ago, it was at 88.3, according to data tracked by Bloomberg News.

While wheat futures for May delivery fell 1.2% to about $6.64 a bushel on the Chicago Board of Trade yesterday, the fall came after two days of gains. Futures are down slightly since starting the year at $6.76 a bushel.

However, Redruello said increased liquidity in global financial markets from cash injections from Europe "has in turn strengthened appetite for risk and might increase day volatility in daily commodity transactions."

Contact the reporter, Laura Miller, at lmiller@thenational.ae.

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