The global wheat market is caught between freezing winds and a sirocco. Prices, up 15% since the start of December, likely will keep rising. The freeze gripping a swath of the U.S. threatens winter wheat planted in the fall. The problem, believe it or not, is a lack of snow rather than too much. While those on the East Coast trudge through the stuff to work, some Midwestern areas haven't enough.

Winter wheat in the ground ideally has at least four inches of snow to insulate it against winter kill, where freezing temperatures damage the crop, according to Joel Widenor of consultancy Commodity Weather Group. He says most areas of the wheat belt have less than two inches of cover now, and he can't remember such a combination of thin cover and freezing weather in more than 15 years. Another mass of cold air is forecast to descend next week. The timing is bad. The crop already had suffered due to a lack of rainfall. Between late November and Jan. 2, the portion of Kansas's winter wheat crop rated poor or very poor climbed from 25% to 33%, according to the U.S. Department of Agriculture.

Globally, supply had tightened last year due to Russia's drought and export ban. Meanwhile, heavy rains in Australia haven't curbed the size of its wheat output, but have hurt quality. Much of it may be good only for animal feed.

Emmanuel Jayet of Societe Generale forecasts a global deficit of 19 million metric tons in the 12 months ending in July, cutting wheat stockpiles by 11%. That would leave stocks still covering 26.5% of demand, higher than the 20.3% that prevailed in 2007-08, when wheat peaked at more than $12 a bushel. With projected inventories relatively more comfortable, investors should beware of whiplash as weather normalizes.

Unfortunately, there is that heat wave from North Africa to deal with, too: trouble in Egypt. This won't disrupt supply, as Egypt is the world's largest importer of wheat. But the role that food-price inflation has played in fomenting unrest in Egypt and Tunisia won't be lost on other regimes fearful of upheaval.

Algeria and Saudi Arabia have said they will increase stockpiles of wheat and other crops. Such announcements to date add up to only one or two million tons of additional imports of wheat globally, according to Goldman Sachs.

In itself, that is negligible. The risk is that hoarding begets hoarding, because stockpiling and export bans can feed off each other. In commodity markets, the threat of disruption makes inventories more valuable. But when that commodity is food, its political value is orders of magnitude higher. Even when winter passes, political storms could provide a tailwind for wheat prices.

indiainfoline.com