Flour prices are set to rise as extreme drought, market volatility, and skyrocketing input costs have the whole food chain passing costs down to consumers.
Perfect storm: Nearly 98% of the U.S. spring wheat crop is experiencing drought conditions—rated the worst since 1988. Commodity buyers are swapping increasingly expensive corn for wheat in livestock feed, and logistics costs are continuing to climb. That’s leaving mills big and small to compensate—meaning price increases are in the mixing bowl.
Bone dry: In the Pacific Northwest, production of winter white wheat wanted by Asian buyers for sponge cakes and noodles is withering. The drought is shrinking kernels and raising protein levels, rendering the once-premium product useless for anything but cattle feed.
The decline in quality wheat is already sifting out flour production, with second-quarter 2021 production down .6% from the pre-COVID second quarter of 2019.
And while we’re here: For the first time, an apron-wearing rep is entering the battle over biofuels. Baked goods companies complain that blending mandates raise the costs of staple foods—like donuts.
Renewable Fuel Standard proponents say now isn’t the time to dial down biofuel backing, citing the ag industry’s continued rebound from trade wars, weather events, and COVID-19.
Wheat often gets the supporting actor nod in the U.S. grain market theater. But with all the headlines about it this winter, its new-found star status has it center stage.
The storyline beings with Mother Nature not being kind to U.S. wheat farmers this season. Drought conditions throughout the fall and winter left growers worried about the crop’s potential. And then the recent record-smashing cold snaps have only made those concerns worse, even if it is winter wheat.
Then the plot thickened. Last week, the USDA released their supply and demand estimates for the crop, and they are taking note of Mother Nature’s toll.
The agency expects 500K more acres to be harvested than last year but with a lower average yield at 49.1 bushels/acre.
Translation: More acres doesn’t necessarily mean more bushels to sell.
And that may be a problem this year.
→ Export taxes on Russian wheat took effect on February 15 and will double on March 1.
→ Argentina is battling dry conditions, limiting yield prospects on many crops, especially wheat.
→ Chinese demand for wheat continues to rise as farmers look for alternatives to pricey corn.
Bottom line: It’s not time for a curtain call yet. Demand for U.S. wheat is expected to surge in the coming months.
Russia is scrambling to slow down rising food costs within its borders.
Fueled by the combo of pandemic-related uncertainty and a drought-stricken wheat crop, Russia is grasping for anything to bring stability to its domestic food and grain markets.
And last week, the country announced a preemptive wheat export tax increase…on a tax that’s not even in place yet.
A 25 euro per tonne tax that begins February 15th will now double to 50 on March 1st.
Why it matters: Last year Russia shipped 34.4 million tonnes of wheat and was projected to top 40 million tonnes this year, cementing its place as the top wheat exporter globally.
It’s pretty much like the big kid on the playground taking his toys and going home.
Egypt is one of the kids still sitting on the playground, left high and dry. As Russia’s top wheat customer, they are left searching elsewhere for the small grain. Bangladesh is in a similar position, now relying on Ukraine for its gluten fix.
On the home front: U.S. wheat prices have spiked over the winter months. The grain has been trading around $6.75, almost a full dollar higher than in early November.
Where this goes: The Russian export developments are only adding to the fear of tight global grain piles. With tighter supplies, grain buyers are left paying a premium while producers sit in a sweet spot when they have market access.