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Despite Rise in Wheat and Corn Prices, US Producers Make Their Push in Asia

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Unlike a few years ago, when surging rice prices provoked near panic in some Asian markets, the region is largely not bothered by the sharp rise in prices for wheat and corn.

Wheat prices jump more than 50 percent

Earlier this month, days after Russia banned wheat exports because of a drought, agriculture representatives from the U.S. state of Nebraska visited Hong Kong and Taiwan to promote their products. In Taiwan, they signed about $500 million worth of wheat, corn and soybean contracts for the next two years.

Wheat farmer Dan Hughes was among them. He hopes the United States, the world's top exporter of wheat, will take up the slack in global supply.

"It's fortunate for us in the U.S. that it's dry in the former Soviet Union. The unfortunate thing is that some farmers in the world have to lose their crop in order for us to make a decent return in our investment," Hughes explains, "We've just finished up our harvest about a month ago, we had an average crop in our farm and with the increase in price that has occurred since the drought in Russia we should have a profitable year this year."

With poor crops in Russia and Eastern Europe, international wheat prices have jumped more than 50 percent since June. While prices are still well below records set in 2008, the increase has consumers and governments in many countries worried.

Asia reacted calmly to jump in wheat prices

But in the United States, the government says wheat production will increase 2 percent this year, and it could be the best year ever for wheat growers in terms of harvest per hectare.

Two years ago, when rice prices more than doubled, there was near panic in Asian markets, as governments and consumers raced to lock in affordable supplies of the region's staple food.

In comparison, Asia has reacted calmly to the jump in wheat prices.

That is largely because the two largest nations - India and China - are also the world's top wheat producers, and they say they have plenty. Nearly all wheat harvested in China and India is sold domestically.

India, the world's second largest producer of wheat, is keeping its reserves for its own use, and has only sold some to neighboring countries like Bangladesh.

China is the largest wheat producer, and the National Development and Reform Commission says that higher world prices will not tighten domestic supply. The commission says wheat prices in China are already higher than international prices so it is unlikely to sell its stock overseas.

That does not mean Asian governments are unconcerned about rising grain prices.

Food prices in China rose 6.8 percent in July, compared with a 5.7 percent rise in June. Chinese authorities carefully monitor food inflation because sudden leaps could lead to unrest among the country's vast rural population.

Australia tough competition for US

Some of the largest food producers in the region, such as the Australian-owned Goodman Fielder, whose baking ingredients business is based in China, say they have already locked in wheat supplies for several months. That shields them from the current price surge.

"At the moment there's no need for us to participate in the market," said Peter Margin, Goodman Fielder's chief executive. "We're very comfortable in the terms of our current position. We think given the current supplies and a strong Australian crop, we would probably see some downward [price] movement there."

Although much of Asia is sheltered from rising grain prices now, that could change, as growing populations and wealth are expected to raise grain consumption.

World corn prices have also increased this year. China has imported large amounts of U.S. corn in recent months, for the first time in four years. A drought at home and increasing demand for corn to feed livestock saw Chinese imports more than double in July from June.

US farmers see market expansion

As incomes rise and tastes change, Hughes and other U.S. farmers see a growing market in Asia, especially in China.

"There's a growing demand for protein products, meat, and in order to generate meat you got to have grains to feed those animals to get them processed. So we view that part of the world as a huge potential market for U.S. grains and for U.S. beef and pork," Hughes said. "There's just a lot of people there, their income levels are rising and they're going to be wanting to eat more meat in their diet."

This month, the U.S. has seen record weekly exports in wheat, corn and soybeans.

But U.S. farmers face tough competition from Australia, however, because its exporters can get grain to Asia faster.

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