The following article is from the Wall Street Journal:
By TOM POLANSEK
U.S. wheat futures surged as massive floods in Australia raise concerns about transporting grain.
Soft red winter wheat for March delivery, the most active contract, was up 23 ¾ cents a bushel, or 3{b5a992b8e63762954627fabd02ae0ce4cbdce5a7319b086354586c608f95fa42}, at $8.18 in recent trade on the Chicago Board of Trade. In overnight electronic trading, the contract reached an overnight high of $8.25, the highest price for a nearby contract since early August, when prices approached two-year highs after Russia banned grain exports because of a devastating drought.
Worries about extreme weather are driving the latest rally, as torrential rains and flooding swamp large parts of Queensland in Australia, typically a major wheat exporter. Floods affecting an area the combined size of France and Germany have affected up to 200,000 people and forced thousands of residents to flee their homes. The Australian military on Monday began rushing supplies to a town slowly being swamped by floodwaters as authorities warned that floods are set to worsen in some areas.
“We are going to see an economic impact. There’s no doubt about that,” Australian Prime Minister Julia Gillard told ABC Radio Monday.
The latest rains have renewed concerns about tightened global supplies of good-quality wheat that can be milled into flour. Traders are worried that farmers in Australia won’t be able to finish the wheat harvest or transport wheat to meet export commitments. Australia is the world’s fourth-largest exporter of wheat.
Rains became a problem for eastern Australia late last year, although drier weather forecasts recently had raised hopes that farmers would be able to advance their harvests. Excessive wetness has lowered the quality of some of the crop to wheat that is suitable for feeding livestock from wheat that is suitable for making into food for human consumption.
The portion of the crop that “might have been salvaged is now unsalvageable, or is growing unsalvageable by the day and by the hour,” said Dennis Gartman, publisher of Gartman Letter, a closely read industry newsletter.
Poor weather that hurt output in other countries last year increases the impact of Australia’s problems on world wheat supplies. Drought slashed output in Russia in 2010, while heavy rains hurt Canada’s harvest. The U.S Plains, Russia and China–which planted wheat this autumn–are struggling with dryness that could affect harvests in spring and early summer 2011.
A proper assessment of Australia’s damage is expected only after the floodwaters, which follow torrential rains associated with the La Nina weather pattern, recede. Many expect damage to run into the billions of Australian dollars.
