Wheat Nears 9-Year High on Mounting Supply and Inflation Fears

(Bloomberg) -- Benchmark wheat in Chicago is trading at its highest level since 2012 amid worsening inflation and fear of global grain shortages.

Futures tied to hard red winter wheat also rose, reaching the priciest level in seven years. Tight supply of higher protein spring wheat is boosting demand for the winter grains to use as a substitute in some baked goods.

Global wheat supplies have been stretched after bad weather struck harvests across major producers and a record trade pace shrinks reserves. Adding to those jitters is concern that shipments from Russia could be limited if the country revises the formula behind its floating grain-export tax.

“The latest wheat rally increases the likelihood of Russia increasing wheat export taxes to ensure domestic food security and attempt to lower domestic wheat costs for consumers,” Farm Futures analyst Jacqueline Holland wrote in a note on Thursday. 

This week’s grain rally hits as worry intensifies about runaway inflation. U.S. consumer prices last month jumped at the fastest annual pace since 1990 and the world’s food-import bill this year is poised to reach to its biggest ever.

The most-active benchmark wheat contract in Chicago reached $8.225 a bushel as of 11:43 a.m. local time, their highest since December 2012. Hard red winter wheat climbed to $8.285 a bushel, the loftiest level since May 2014. Paris milling wheat earlier neared a fresh record high.

In other crops, corn for March delivery erased earlier gains to fall 0.3%. Prices are under pressure after the U.S. government reported Wednesday that weekly ethanol production fell a more-than-forecast 6.1% from the prior period, the biggest weekly drop since February following recent surges in output.

Soybeans for January rose for a third straight day. The futures are on track for the biggest weekly increase in two weeks after the U.S. Department of Agriculture forecast a smaller-than-expected harvest. 

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