BBC News
watch One-Minute World News
Last Updated: Tuesday, 26 February 2008, 15:40 GMT
Why are wheat prices rising?
A wheat field after harvest in China
A drought in China is one reason why wheat prices have soared
Wheat prices have hit record highs and tight supplies of the staple crop have ignited concern about rising food costs.

The price of higher-quality spring wheat jumped almost 25% on Monday - the biggest one-day increase to date.

The rise comes as the UN's World Food Programme warns that it will have to start cutting rations or feeding fewer people if it does not get more money to cope with the higher cost of food.

Wheat is used to make staple foods such as bread, pasta and noodles.

EXPORT CURBS

The main reason behind Monday's sudden rise in wheat prices was a decision by Kazakhstan to impose export tariffs to curb sales.

TOP FIVE WHEAT EXPORTERS
US
Russia
Canada
Argentina
EU
Source: Barclays

Kazakhstan, a big exporter of wheat, said the curbs would help it battle an inflation rate of nearly 20%.

The move follows similar restrictions imposed by Russia and Argentina.

"Politically, it's difficult for these countries to continue to export if prices are high domestically," said Sudakshina Unnikrishnan, agricultural analyst at Barclays Bank.

Last year, tens of thousands of Mexicans marched in a protest against the rising price of tortillas after the price of the flat corn bread soared by over 400%.

DROUGHT

World wheat stocks are expected to hit a 30-year low this year, partly driven by the worst drought in Australia in 100 years, which halved the winter wheat crop to 12 million tonnes in 2007.

Reports of drought and water shortages in north-west China, where most of the country's wheat is grown, have also spurred buying in recent days.

Unusually cold weather last year in places such as Ukraine also hurt production.

LAND FOR BIOFUELS

Demand for alternative energy sources has led farmers to sow less wheat and convert land to crops such as corn, sugarcane and rapeseed, that can be turned into biofuels.

Barley harvesting in Australia
Wheat prices have risen 83% in a year

Ethanol, diesel and other liquid fuels can be made from processing plant material.

But this means there is less land for growing food crops.

Wheat prices may come down as high prices convince farmers to devote more land to the crop, but this takes time.

GROWING DEMAND

In addition to the supply problems pushing up prices, there has also been growing demand.

Increasing wealth in China and India, for example, has led to consumers eating more meat, which means more grain is needed to feed farm animals.

The US Department of Agriculture forecasts that Chinese imports of pork will double over the next 10 years.

SPECULATION BY INVESTORS

Wheat prices have also soared as commodities have found favour among investors struggling with poor returns in other markets.

Stock markets have lost ground as the world economy slows and the fallout from the sub-prime crisis continues.

"There are a lot of non-commercial positions in the market but it's predominantly driven by fundamentals," said Ms Unnikrishnan.

"For three years production has been outstripped by consumption and grain stocks are tight."




SEE ALSO
Fresh records for price of wheat
26 Feb 08 |  Business
Cereal prices hit poor countries
14 Feb 08 |  Business
UN warns on soaring food prices
17 Dec 07 |  Special Reports
Wheat breaks through $10 a bushel
17 Dec 07 |  Business
Sowing the seeds of farming's future
13 Nov 07 |  Science/Nature
Counting the cost of wheat price hike
21 Sep 07 |  Special Reports

RELATED INTERNET LINKS
The BBC is not responsible for the content of external internet sites



FEATURES, VIEWS, ANALYSIS
Has China's housing bubble burst?
How the world's oldest clove tree defied an empire
Why Royal Ballet principal Sergei Polunin quit

PRODUCTS & SERVICES

Americas Africa Europe Middle East South Asia Asia Pacific