Dec. 17 (Bloomberg) -- Wheat rose above $10 a bushel for the first time, bolstering prices for other grains and oilseeds and stoking inflation.

Chicago wheat futures rose as much as 30 cents, or 3.1 percent, to $10.095 as dry weather threatened crops in Argentina, adding to concern the world's farmers may not be able to grow enough to meet demand for bread, pasta and livestock feed. Rice also jumped to a record, while soybeans reached the highest in 34 years and corn was its costliest in nine months.

Kellogg Co., the maker of Frosted Mini-Wheats cereal and Eggo waffles, and General Mills Inc., the maker of Cheerios cereal, already have raised prices. Kikkoman Corp., Japan's biggest maker of soy sauce, is planning its first price increase in 18 years, while Sara Lee Corp. said Dec. 13 it will increase bread prices for a second time since September.

``We are seeing a broad-based increase in cost pressures,'' Brian Redican, senior economist at Macquarie Group Ltd., said in an interview from Sydney today. ``The increase in soft commodity prices is really the next stage in that process.''

The price of wheat has more than doubled in the past year as drought reduced output from Australia to Canada. Dry, warm weather may hurt yields in Argentina, the world's fourth-largest exporter, forecaster Meteorlogix LLC said Dec. 14.

A smaller Argentine crop may reduce global wheat inventories that the U.S. government says will drop 11 percent by May 31 to 110.1 million metric tons.

`Fear Factor'

``Global supply is really tight at this time,'' said Tobin Gorey, a commodity strategist at Commonwealth Bank of Australia. ``Saying there's a near-term top in the price is a very dangerous thing to do.''

Wheat for March delivery, the most-active contract, rose 21.5 cents, or 2.2 percent, to $10.01 a bushel after earlier rising the exchange-imposed daily limit of 30 cents in after- hours electronic trading on the Chicago Board of Trade.

U.S. consumer prices rose the most in more than two years last month, reinforcing the Federal Reserve's concern that inflation will erode confidence in the economy.

The consumer price index, a U.S. Department of Labor measure of prices paid by urban customers for a basket of goods or services, showed on Dec. 14 that the cost of food rose 4.1 percent in the three months ended Nov. 30.

The CPI for food and beverages rose partly because of increased costs for cereal and bakery products, along with higher prices for fruits and vegetables, the department said.

``You can see inflation picking up,'' said Jerod Leman, a broker at Wellington Commodities in Carmel, Indiana.

Accelerating Inflation

Inflation is accelerating partly because U.S. interest rates are too low, eroding the value of the dollar, Leman said.

``Interest rates have been too low for too long,'' he said. Former Federal Reserve Chairman Alan Greenspan ``kept interest rates way too low and he started something that can't be stopped,'' Leman said. ``Inflation is starting to take over, and really, we haven't seen anything yet.''

Food prices will continue to rise through 2008 because wheat, corn and soybeans are expected to continue to rally, said Darin Newsom, a senior analyst at agriculture information company DTN in Omaha, Nebraska. Wheat may reach $14.50, based on technical and fundamental indicators, Newsom said.

Many speculative traders are trying to buy back their short positions, or bets that prices would fall, in the March and May contracts, and they are selling their July contracts. May contracts in Chicago rose 15.5 cents, or 1.6 percent, to $9.90 a bushel. Wheat for July delivery in Chicago fell 11.75 cents, or 1.5 percent, to $7.7625 a bushel overnight.

Europe, Noodles

European inflation increased last month at its fastest annual pace since May 2001.

``People need to eat and that's part of the fear factor in this environment,'' said Brett Cooper, an adviser on agriculture at broker MF Global Australia Ltd. ``There's people saying potentially $11 or even $13'' for wheat.

Higher food prices are forcing some Italians to eat at soup kitchens and threatening unrest in China, where a stampede at a supermarket sale of cooking oil killed three people in November.

The Chinese government said today it will eliminate export tax rebates on a range of food commodities such as wheat as part of a series of measures to secure domestic supplies and control rising food prices.

The tax incentives on exports of crops including rice, soybeans, corn, barley and oats, as well as flour milled from these grains, will be eliminated from Dec. 20. China's food costs gained 18.2 percent last month, pushing inflation to the highest in 11 years.

Russia, Egypt

Russia, the world's fourth-biggest wheat exporter, plans to cap exports of the grain once shipments for the year from July reach 12.5 million tons, as the government struggles to control inflation. The threshold may be breached as early as January, according to Russia's Grain Union, which comprises the nation's biggest grain producers and traders.

Egypt, the world's second-largest wheat importer, last week canceled a tender for at least 80,000 tons of the grain because of high prices. Other customers are also cutting back, AWB Ltd., Australia's largest wheat exporter, said today.

``Buyers are reluctant to lock in significant tonnage at the current prices as their flour margins are negligible,'' the Melbourne-based company said in a statement. AWB ``expects the international wheat market to remain extremely tight for the first half of 2008.''

India, France

India's State Trading Corp. will close bids today to buy 350,000 tons of wheat as the country, the world's third-biggest importer of the grain last year, seeks to replenish reserves.

Milling wheat for March delivery on the Euronext.liffe exchange in Paris rose 9 euros, or 3.4 percent, to 272.75 euros ($392.04) a ton as of 4 p.m. local time. Prices have climbed 81 percent this year.

Soybean futures rose as much as 17.25 cents, or 1.5 percent, to $11.9225 a bushel in Chicago, the highest for a most-active contract since June 1973. The contract for March delivery was at $11.8150 at 7 a.m. local time.

Soybeans may lead gains among non-energy commodities next year because of shortages of acreage and rising demand for biofuels, Goldman Sachs Group Inc. said in a report Dec. 11. Prices have gained 73 percent this year after U.S. farmers planted the fewest acres in 12 years in favor of corn.

Corn for March delivery rose as much as 5 cents, or 1.1 percent, to $4.4325 a bushel in Chicago, the highest for a most- active contract since Feb. 26, when the price climbed to a 10- year high of $4.5025. The contract traded at $4.4075 at 7 a.m.

To contact the reporters on this story: Madelene Pearson in Melbourne on mpearson1@bloomberg.net; Marianne Stigset in London at mstigset@bloomberg.net.

Last Updated: December 17, 2007 10:21 EST