The biggest rally in the history of wheat trading defied even some of the best conventional wisdom, humbling forecasters from Goldman Sachs Group Inc to the US government.

Wheat has more than doubled since May, reaching a record $11.53 a bushel on Feb 11 and driving up costs for everything from Eggo waffles and Italian pasta to Pakistani flatbreads and Japanese pastry. This month the world's biggest securities firm scrapped projections for a price drop within 90 days, and the United States, the biggest exporter, said it would ship 23 percent more than originally estimated before summer.

"The supply shortage has been much more acute than what we had expected," said Ruifang Zhang, a commodities analyst at Goldman in London. The firm, which was right about the trajectory of crude oil last year, raised its three-month price target to $13.50 from $9.20 on Feb 8.

Wheat set a record 16 times since September, resonating around a world that relies on the grain more than any food crop except rice. Exporters Argentina and Russia halted sales or raised taxes to protect dwindling reserves. Pakistan boosted imports as inflation in January rose 12 percent, the most in 33 months.

Farmers aren't keeping pace with dietary changes resulting from greater prosperity in India and China. The Department of Agriculture predicted Feb 8 that US stockpiles for the 12 months through May will drop 40 percent to the lowest since 1948 as global production lags behind consumption for the seventh year in eight. Droughts and rain damaged crops in Australia, France and the US last year, thwarting bets that higher prices would reverse the trend by encouraging bigger harvests.

'Unprecedented demand'

"There's been unprecedented demand globally for grains," said Gordon Davis, managing director of Melbourne-based AWB Ltd, the largest wheat exporter in Australia. "It's being driven by demand for protein in Asia, which reflects rising incomes."

Even farm animals, which eat 16 percent of the world's wheat, are driving consumption as alternatives such as corn feed get more expensive. The appeal of corn-based ethanol is increasing as the US government sets mandates for alternative energy sources.

Wheat's most-active futures on the Chicago Board of Trade rose more than $7 a bushel between April and the Feb 11 high. Before then, they hadn't exceeded $6.36 in the 159-year history of the world's biggest grain exchange.

In the US, a one-pound loaf of bread sold for an average $1.28 in December, 13 percent more than a year earlier, as the cost of flour increased 25 percent to 39.8 cents a pound, Bureau of Labor Statistics show.

Sara Lee Corp, a bread and cake maker based in Downers Grove, Illinois, raised a loaf 20 cents between September and December because its wheat costs soared. Fourth-quarter profit at Battle Creek, Michigan-based Kellogg Co, the largest US cereal maker, fell 3.3 percent as price increases failed to keep pace with the higher expense of making Eggos, Frosted Mini-Wheats cereal and cookies.

Consumers pay

In Japan, Asia's biggest wheat importer, companies such as Yamazaki Baking Co, the No 1 bread and pastry maker, are passing costs to consumers as the government charges more for the grain. The Ministry of Agriculture, Forestry and Fisheries said Feb 15 prices will rise an average 30 percent in April, the biggest increase since 1973.

Global wheat production for the marketing year through May will probably reach 603 million tons as consumption rises to 619 million tons, according to the USDA. Demand in India, the most-populous nation after China, is up 16 percent since 2001.

The US is the exporter of last resort as Russia, the third-biggest exporter, and Argentina, the fourth-largest, keep more for themselves. So far this marketing year, US shipments have doubled to Egypt, Iraq and Indonesia, and tripled to the European Union, USDA data show. Pakistan, which imported nothing from the US last year, purchased 150,000 tons.

Agencies

(China Daily 02/21/2008 page17)