Wheat prices soar on drought fear

Wheat became the latest commodity to be gripped by a speculative boom as fears of a drought in Australia triggered the sharpest price spike for almost two decades.

The price of wheat for delivery in December surged 6 per cent yesterday after a similar rise on Monday, making it the largest two-day rise since July 1988.

Extreme weather conditions across the globe have cut the expected wheat harvest by almost 5 per cent this year, according to the Food and Agriculture Organisation of the United Nations (FAO).

Wheat prices have soared 54 per cent over the past 12 months on the Chicago Board of Trade. The latest spike was driven by reports that a drought in Australia would push the supply in the country to a record low. "It's a full blown disaster there," Louise Gartner, an analyst with Spectrum Communications, said.

The FAO said: "Prospects for the 2006 world cereal harvest have deteriorated further since July. Exceptionally hot and dry weather is adversely affecting the wheat crops in Australia, Argentina and Brazil, while drier-than-normal weather in parts of south Asia is also raising some concern."