Amid continuing worldwide financial turmoil and a weakening economic outlook, prices for grains and other physical commodities have taken huge hits in recent months. For wheat, supply and demand fundamentals have only added more pressure.

Since setting a record high of $450 a tonne in March, wheat prices as of mid-November had dropped by nearly 50% to $230. The price declines occurred in two major waves, the first from March to August as global financial markets continued to unravel and the Northern Hemisphere wheat harvest loomed. The second wave occurred as the financial meltdown intensified, investors stampeded into cash holdings, the U.S. dollar soared, crude oil prices crashed and evidence pointed to a global economic recession.

At the same time, the wheat market confronted a major turnaround in its supply/demand outlook. After exceptionally tight supplies at the end of the 2007-08 marketing season, 2008-09 has seen a recordtying jump in production, underscoring the old market saying, "The cure for high prices is high prices."

For 2008-09, the world is projected to harvest a record wheat crop of 682.4 million tonnes, up 12% from 2007-08 production of 610.6 million, according to the latest report from the U.S. Department of Agriculture (USDA). The extraordinary 71.8-million-tonne jump equals the previous record year-on-year production gain seen in 2004-05.

Stunning harvest increases have occurred throughout the Northern Hemisphere, led by the European Union’s (E.U.) record 150.6 million tonnes, up 26% from 2007-08. Although average yields did not quite match the 2004 record, harvested area was higher amid very strong prices during planting.

Another record 2008-09 crop comes from Russia, with 63 million tonnes harvested, up 27.5% from the previous season. The spring wheat crop is close to average, but USDA described the winter wheat harvest as "huge."

In the U.S., 2008-09 wheat production was put at 68.03 million tonnes, up 21% from 2007-08, while Canada’s production jumped 36% to 27.3 million tonnes. Ukraine’s wheat output showed the biggest year-on-year percentage increase of 83%, rising to 25.5 million tonnes, the highest since 30.4 million in 1990-91.

In the Southern Hemisphere, Australia’s crop should rebound to 20 million tonnes, up 53% from the drought-plagued 2007-08 harvest, despite poor conditions in South Australia, Victoria and parts of New South Wales. Among the world’s major wheat producers, only Argentina is expected to see a harvest decline, with output estimated at 11 million tonnes versus 16.3 million in 2007-08, based on persistent dryness in northern areas.

On the consumption side, the USDA projected 2008-09 total use at a record 656.5 million tonnes, up 6% from the previous season. Feed use, estimated at 124.1 million tonnes in 2008-09, will increase by about 31% from the previous season, spurred by large crops in the E.U. and Russia.

World wheat ending stocks in 2008-09 are projected at 145.3 million tonnes compared with 119.4 million at the end of 2007-08. Significantly, the stocks-to-use ratio at the end of 2008-09 is projected at a comfortable 22%, just one season after it fell below 20% for the first time since at least 1960.

World wheat trade for 2008-09 is forecast at a record 124.3 million tonnes, 8% higher than the previous record in 2006-07. E.U. selling so far in the current year has been aggressive, the USDA noted, with export licenses through the first 19 weeks of the season nearly double the pace of the past few years.

But some analysts caution the global economic slowdown could crimp wheat trade, with credit and financial market conditions also playing a role. During the recent meltdown, defaults on some grain purchases and problems obtaining credit were reported. A collapse in bulk freight rates also has raised fears about the financial health of shipping lines and the effects on grain trade.