Wheat price hike likely, says analyst

13-Aug-2012 - Last updated on 14-Aug-2012 at 10:54 GMT

Bakery and snack manufacturers can expect a higher wheat price in the coming months as the US drought has hit the maize market putting pressure on wheat supplies amid export concerns in Russia, says an analyst.

Jack Watts, senior market analyst, for the Agriculture and Horticulture Development Board (AHDB) and the Home Grown Cereals Association (HGCA) told BakeryAndSnacks.comthat more wheat would be used in the feed industry, constraining supply and putting up prices.

He added that the global wheat supply could be hit further by fewer exports from Russia, which has suffered from dry weather.

Maize effect

Around 70% of the world’s feed grain is maize. Wheat is used to a lesser extent, but when the maize market experiences difficulties, feed users turn to wheat.

“Because of the US drought there’s been a big impact on the US grain market [which includes maize],” said Watts.

“Whatever happens in the US maize market has a big impact on global wheat prices,” he continued.

According to data from IndexMundi, maize prices shot up around 26% to £213.58 per metric tonne between May and July this year.

Watts said the rise had been due to a drought in the US, and warned that feed users could look to use more wheat, limiting availability for the bakery and snacks industry.

Knock-on effect

The global wheat crop was revised downwards by the United States Department of Agriculture (USDA) last week.

Global wheat end stocks for 2012/13 are projected at 5.3 million tonnes lower than expected at 177.2 million.

Watts said that in the UK, bread wheat prices stood at £186 per tonne, but as a result of the maize impact, prices shot up 32% to £245.50 by July.

From Russia with less love

“Everyone is fearful of what happens in Russia,” Watts added.

He said that the market was worried about a return to export restrictions in the Russia.

If there is a lower export availability of Russian wheat, there will be less completion in the global wheat market which could drive up prices, he said.

Limiting the impact

Asked what bakery and snacks manufacturers could do to limit the impact of wheat price volatility, Watts said: “In the short to medium term forward contracts are becoming very useful.”

Private label firm Ralcorp said last week that it anticipates year-over-year input cost increases of $52 million in the next quarter, as an extremely hot summer and drought has taken its toll and result in commodity price hikes.

It plans to continue to hedging six to nine months in advance on all key commodities, due to volatility in the grain market.