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The Future of Food Prices: Wheat


Though currently standing at record highs, one advisor thinks there's only one direction for wheat prices: down.

Cash wheat prices are currently a bit above $8 per bushel. The USDA is projecting an average cash price of $7.50 for the 2011/2012 marketing year. Less expensive, to be sure--but still more than twice the $3 wheat was selling for in June.

Though historically high, Shawn Hackett, founder and CEO of Hackett Financial Advisors, a money management firm with a focus on commodities, thinks there's only one direction for wheat prices: down.

"Wheat's pretty high right now," he says. "A lot can happen, obviously, but I'd feel comfortable in saying that prices for wheat and wheat products are heading lower-we've already run prices up about double or more in most ag markets."

Of course, last year's weather was certainly responsible for most of that run-up; drought and wildfires in Russia led to an export ban and mudslides in China further reduced global stockpiles and spooked commodities markets. Wheat, which provides 20% of the world's protein, suddenly became a near-luxury.

Wheat has not received the same attention from agriculture companies like Monsanto (MON) and Syngenta (SYT) because researchers have yet to decode its genome, thus they've been unable to help it better resist drought and disease. The wheat genome is five times larger than the human genome and many times that of corn, which reportedly gets more than 20 times the research dollars of wheat.

Thus, wheat yields have not grown as quickly as those of other crops, which is something now being working on with increased necessity.

"We don't really have a sequence in hand yet. We're really not there," says Kansas State University wheat breeder Allan Fritz.

And now is when we need to be "there" more than ever.

"There is an urgent need to improve yields of wheat; it is estimated that in the next 50 years we will need to harvest as much wheat as has been produced since the beginning of agriculture 10,000 years ago," one researcher said just a few weeks ago.

Back in August, a group of British scientists released the first version of the wheat genome, something that was considered near-impossible until recently.

"This is significant progress," said Kellye Eversole, executive director of the International Wheat Genome Sequencing Consortium. "It is a very useful contribution towards the final goal of a genome sequence-based platform for wheat breeding. While we are nowhere near cracking the genetic code and far from having all of the information needed to understand the wheat genome, we are moving forward."

The group is hopeful the fully-sequenced wheat genome will be available within the next five years or so, which will go a long way in meeting the food needs of the planet's expanding population.

U.S. Wheat Associates President Alan Tracy says, "The new emphasis on and investment in wheat breeding is good news both for wheat producers and a hungry world."

Increased yields will, obviously, lead to lower prices. Which leads to food on every table. Which is all that really matters, anyway.

Read More: For a contrary opinion on the future of wheat prices, see What Will Food Cost in 2015?
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