ht seeking alpha
As you walk by supermarket shelves stocked with loaves of bread and pasta, it seems hard to believe, but the world is currently experiencing a major wheat shortage. In the commodity markets, the shortage has helped drive the price of wheat to thirty year highs. According to the London-based International Grains Council, global wheat supplies in the year ending June 2008 will drop to their lowest levels in more than a quarter of a century. Meanwhile, the price of wheat is soaring. At the end of August, CBOT December wheat contracts hit a record high of $7.885 a bushel. Over in Europe, wheat for November delivery on the Euronext.liffe exchange reached 266.75 euros ($363) a ton in Paris. Prices for the contract closest to delivery have gained a whopping 75 percent this year alone.

As with most commodity price spikes, wheat prices are being affected by two dynamics: a shortage on the supply side and an increase on the demand side. Supplies have been hurt by droughts in Ukraine, Europe, Canada and Australia, which are four of the world's leading wheat producing. The U.S. is the world's #1 exporter, and U.S. farmers are churning away, exporting about 16.5m tons of wheat this year, almost double the amount they sold in the same period last year. However, a severe drought cut Australia's wheat crop last year to just 10 million tons, less than half the year before. Meanwhile, Ukraine, the world's eighth-biggest wheat exporter, is already cutting exports after drought cut its grain harvest to 30 million tons, its smallest since 2003. The country will ship 58 percent less grain this year, according to its Agricultural Ministry.[some areas suffer from drought, others from too much rain, or badly times precipitation]

While sellers have less wheat to sell, buyers keep coming in with more orders. That's especially true in traditional emerging economies such as Brazil and India, but demand is coming from some surprising places, like South Korea, and Egypt. Egypt bought 10 times more wheat last month than it did a year earlier, in anticipation of higher prices, according to the country's General Authority for Supply Commodities.[countries that know, have begun to stockpile and global stocks are very low]

There is a third factor affecting the global wheat market, and that is Russia, the world's fourth largest exporter of grain. Traders are speculating that the Russian government will step in and actively reduce shipments to control domestic food prices. According to Bloomberg News, Russia has created a ``working group'' to consider measures that may include export restrictions, duties and quotas. Kazakhstan also said it plans to introduce licenses for grain exports. The other part of the Russian wildcard is the country's elections, which take place next year. Russian President Vladimir Putin has to step down, and the USDA has said the election in Russia makes government policy, including possible tariffs or export regulations, less predictable than ever. [shame on churches that continue the useless building of new houses, when so many are available by foreclosure, and no mention of worldwide hunger!]