Despite the commodity price drop in the US, global wheat prices continue to remain high.
“We have seen high wheat prices before, but what we haven’t seen is these prices for such a long period. Previously it’s only been spikes – this is more prolonged. It’s uncharted territory for industry,” Jack Watts, senior market analyst for the Agriculture and Horticulture Development Board (AHDB) and the Home Grown Cereals Association (HGCA) said.
“Coming into 2013 we have seen some weakening in the price of wheat, retracting from record levels, but prices do still remain historically strong, particularly from a European perspective,” Watts told BakeryandSnacks.com.
He said these prolonged high raw material prices will inevitably start to squeeze margins throughout the supply chain, leaving bakery and snack manufacturers no choice but to pass on costs to consumers.
“Spikes have been mitigated in the past through actions like using previously bought cheaper raw material stocks. However, there is limited low-price cover left for processors – they will already be feeling the pain,” Watts said.
The global pinch
Added to this, Watts said the market remains underpinned by a tight global grain supply – a pinch set to tighten further over the coming year.
A wet season in Argentina impacted yield and quality and lower harvests in Russia and Australia have also contributed to this tightening, he said.
“Nothing will change until the 2013 harvest starting across Europe in July. Until then the market has to get through the first half of the year on tight supplies.”
Watts forecast that processors and manufacturers might consider all options globally for wheat purchases “given the level of premium European wheat has over global wheat”.