Speculative funds piled into wheat futures yesterday, causing the price per bushel to breach $10 for the first time as traders fretted about low stocks and the risk of drought afflicting the US crop.

The cost of a bushel of wheat has doubled in the space of a year, fuelling worldwide food price inflation and creating havoc in developing countries that depend on imported food.

Wheat prices continue to gain ground after a big surge in the spring in the cost of grain, which forced millers in the UK to push up the price of flour. Bakers have passed on the cost, raising the price of a loaf by 10 per cent and animal feed merchants raised the cost of feed creating an inflationary tornado in the farmyard.

Farmers are also feeling the pinch with the soaring cost of agro-chemicals, including fertilisers, pesticides and herbicides. Rising demand for grain has created worldwide shortages of nitrate fertilisers.

Growhow UK, a large British producer of fertilisers, has seen a doubling of its raw material costs with the price of urea rising from $225 to $420 (£208) per tonne and ammonium phosphate soaring 150 per cent year on year. “We are going through unprecedented times,” Ken Bowler, Growhow’s marketing manager, said.

The core ingredients of chemical fertilisers come from the energy industry, notably natural gas where the cost is rising sharply. However, soaring demand from farmers is another driver. “As wheat prices have risen, plantings have risen. In the EU, set-aside acreage has been reduced to zero.”

ADM Milling, Britain’s biggest flour miller, said that fears of a drought in the United States and speculators were driving up the wheat price. A spokesman for ADM said that the company was not yet raising prices but was watching the market closely. “Flour prices have more than doubled. We are looking at everything on a daily basis.”

The price of CBOT’s benchmark March contract gained 3 per cent yesterday and pushed up European milling wheat futures. The Chicago wheat price has risen from about $5 a bushel in the fourth quarter of last year to reach $10.09 yesterday as concern over dwindling stocks has provoked frantic purchases by government agencies. Wheat stocks worldwide are at extraordinarily low levels after a lengthy drought in Australia, the elimination of EU intervention stocks and rising demand. A shift in the Asian diet to greater consumption of meat has led to increased demand for animal feed, while biofuel manufacturers have added competition for grain resources.

The soaring cost of food caused the Chinese Government yesterday to scrap export incentives on grain. Food prices in the People’s Republic rose by 18 per cent in November, causing the Chinese consumer price index to reach 6.9 per cent, its highest level in 11 years. In response, Beijing is scrapping a tax rebate on exports of grains, including corn, wheat, rice and soybean, in an attempt to curb domestic price surges.

India yesteday failed to secure sufficient bids from grain merchants to meet a tender for 350,000 tonnes of wheat. The total bid amounted to 330,000 at exceptionally high prices. The Indian Government is building up emergency stocks but the global wheat shortage has provoked panic buying by government agencies in Asia, the Middle East and North Africa.

Global harvest

Biggest producers of wheat
EU 122 million tonnes
China 106 million tonnes
India 75 million tonnes
US 56 million tonnes
Russia 48 million tonnes

Biggest exporters
US 32 million tonnes
Canada 15 million tonnes
Russia 12 million tonnes
EU 10 million tonnes
Argentina 10 million tonnes

Biggest importers
Egypt 6.8 million tonnes
EU 6.5 million tonnes
Brazil 6.4 million tonnes
Japan 5.5 million tonnes
Indonesia 5.4 million tonnes

World production
603 million tonnes

Total trade
104 million tonnes

Consumption
611 million tonnes

(Estimates for 2007 by International Grains Council)

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