In Price and Supply, Wheat Is the Unstable Staple

CHICAGO — For decades, wheat was a commodity no American needed to think much about, except the farmers who grew it. The grain was usually plentiful and prices were low.

All of a sudden, those assumptions have been turned upside down. With demand soaring abroad and droughts crimping supply, the world’s wheat stockpiles have fallen to their lowest level in 30 years, and stocks in the United States have dropped to levels unseen since 1948.

Prices have been gyrating in recent days as traders tried to figure out what to make of the situation. On Tuesday, prices for a sought-after variety, spring wheat, jumped to $16.73 a bushel on the Minneapolis Grain Exchange, the latest of several records.

Prices for common wheat are up nearly 50 percent since August, and they are up even more for the most sought-after varieties, leaving buyers, growers and longtime commodity traders shaking their heads.

“Anyone who tells you they’ve seen something like this is a liar,” said Vince Boddicker of the Farmers Trading Company in Mitchell, S.D.

Though this week’s prices were nominal records, the inflation-adjusted record for wheat was set in the mid-1970s, when it exceeded $20 a bushel in today’s dollars after huge sales to the Soviet Union.

Foreign buying is driving this market, too, but these buyers include South Korea, Taiwan, Mexico, Nigeria and Venezuela. Economic growth abroad has given people the means to improve their diets, and they are developing a taste for products made from wheat.

“We haven’t hit a price that has slowed the international interest,” said Joe Victor of the commodity research firm Allendale. “That is something that definitely has the market excited.”

Among the consequences are stretched wallets at home and abroad as food processors pass along higher costs.

“When the price of your raw material quadruples, you can’t afford not to raise your prices,” said Timothy Dodd, president and chief executive of the Dakota Growers Pasta Company in Carrington, N.D. “Otherwise you’re out of business.”

In a Jan. 30 conference call, the chief executive of Kellogg, A. D. David Mackay, said, “Everyone is feeling these inflationary pressures.” General Mills cited rising ingredient costs when it increased cereal prices last June.

The Food and Agriculture Organization of the United Nations estimates that world wheat production will rise this year to nearly 664 million tons, from about 655 million tons — not enough to replenish stocks and push down prices. In December, the organization noted that high international grain prices were causing food shortages, hoarding and even riots in some places.

To damp volatility, three United States exchanges that trade wheat futures contracts have raised the daily limit on price movements from 30 cents to 60 cents during the past week.

For the moment, the mania appeared to be halted in Chicago and Kansas City. March prices for soft red winter wheat, a low-protein wheat that is less favored than spring wheat, fell 41 cents Tuesday, to $10.07, in Chicago.

Egypt put out an offer for a large wheat purchase on Monday, but chose not to buy any. That prompted speculation that it was waiting for prices to fall. But Japan was reported to be bidding for 85,000 tons of American spring wheat.

“When the last person who has to buy in a market does so, you have a top,” Mr. Boddicker said. “We’re quickly approaching that point, if we haven’t hit it already.”

Few farmers have enough wheat on hand to take advantage of the recent increases, the trader said. Most sold last fall for prices that seemed good at the time.

The United States Department of Agriculture’s 10-year forecast, released Tuesday, sees the wheat shortage as temporary. Stockpiles were predicted to fall this year to 312 million bushels, from 456 million bushels, before rebounding to about 700 million bushels by the end of the decade.

Higher prices “will encourage additional acreage and production,” the report said. Wheat plantings will rise to 65 million acres in the 2008-9 season, from 60.4 million this year, the Agriculture Department said, though it predicted the number would then fall because of competition from other crops.