Don't blame agricultural economists if they're feeling somewhat befuddled right now concerning wheat.

After two years of record price increases among grains -- including wheat -- and amid a global commodities price surge, and more than a month after predictions of wheat and bread shortages capable of producing social unrest, the U.S. Government is now predicting a global wheat production recovery for 2008.

U.S. wheat production to rise

The U.S. Department of Agriculture's latest estimate predicts that 2008 world wheat production will increase considerably, including an 8% increase in U.S. production to 656 million tons.

The USDA said good weather and record-high prices that have increased incentives to plant and farm effectively are the primary factors behind wheat's expected large harvest this year, Reuters reported Wednesday.

Wheat traded down 22 cents at $7.73 per bushel in Wednesday afternoon trading. Wheat has declined more than 20% since hitting a record-high $12.82 per bushel on March 12, 2008.

The wheat segment has gone from complaints that ethanol-driven corn planting would displace most wheat in the U.S., bakers associations complaining of massive ingredient price increases, and the specter of shortages in developing nations, to the likelihood of a bumper crop and substantially lower prices by year's end. What gives? Economist Glen Langan, whose specializations include agricultural economics, is perplexed as well. Langan said he hasn't had a chance yet to thoroughly analyze the USDA data, but early indications suggest the free market has played a role.

Market plays role

"The USDA projections suggest a market that has readily responded to price incentives, particularly in Canada and the European Union, and if the weather holds, their estimate most likely will be on-target," Langan said. "But keep in mind that for poor citizens in developing countries, wheat will still be expensive, given the price run-up. But the [projected] production reversal is a gold star for the free market in action."

Still, Langan cautioned against euphoria regarding the prospects of a return of wheat prices to pre-globalization levels. Langan said long-term, secular factors, including expanding middle classes in Asia and Latin America (who eat more bread and consume more calories daily) and bakers' costs (businesses must pass along not only rising wheat costs, but also rising energy costs), means the U.S. -- and much of the developing world -- is unlikely to experience a return to low wheat prices.

Hence, long-term, developing nation government programs to help poor residents purchase this basic food stuff should continue, he said.

In the United States, that also means that recent cost increases for items such as bread, pasta, bagels, noodles, and pizza will remain in place, in most circumstances.

Langan added, "We're not in a wheat-challenged world, but we're certainly in a market where almost all foodstuffs and grains will cost more than our parent's generation."