Wheat prices are finally starting to fall after a year of steep increases. And just as the earlier rises only manifested themselves to a certain extent in the retail price rises of wheat-based goods, so the recent fall has only been passed on to a certain degree.
Wheat prices are currently 40% down on their high this spring, but bread prices are down by as much as 20% (value loaves). There are several reasons for the disparity. On the one hand there are some downward pressures on prices. World wheat crops are forecast to be bountiful this year – the EU crop is forecast to be up 23% by weight on last season – and the price of crude oil has fallen.
However, there are also plenty of upward pressures, including the global financial crisis and a poor UK summer that damaged the harvest – in late summer farmers harvested some two million hectares in the UK, 13% more than last year, but much of this wheat showed moisture levels above 20% and so was downgraded from milling quality to feed wheat quality.
This could result in UK bakers importing massive quantities of wheat. One of the country’s largest bakers sources its wheat only from Canada, where wheat production is significantly up on last year because of good growing conditions and last year’s high prices, which encouraged farmers to increase the number of plantings.
If the cost of bread in UK stores were solely based upon the worldwide availability of wheat, we could expect prices to fall sharply. However, production costs have risen and transportation costs have not fallen significantly since the beginning of last year.
These are not the only reasons for the disparity between the fall- off in wheat prices and the finished product. The credit crunch is now taking a major toll on businesses and cashflow has become even more important as credit dries up. Producers are therefore taking the view that they cannot pass on the full savings to the final consumer.
Just as with oil versus petrol pump prices, it is only when competition hots up that we are likely to see prices fall more significantly in the bread market.
Wheat prices are currently 40% down on their high this spring, but bread prices are down by as much as 20% (value loaves). There are several reasons for the disparity. On the one hand there are some downward pressures on prices. World wheat crops are forecast to be bountiful this year – the EU crop is forecast to be up 23% by weight on last season – and the price of crude oil has fallen.
However, there are also plenty of upward pressures, including the global financial crisis and a poor UK summer that damaged the harvest – in late summer farmers harvested some two million hectares in the UK, 13% more than last year, but much of this wheat showed moisture levels above 20% and so was downgraded from milling quality to feed wheat quality.
This could result in UK bakers importing massive quantities of wheat. One of the country’s largest bakers sources its wheat only from Canada, where wheat production is significantly up on last year because of good growing conditions and last year’s high prices, which encouraged farmers to increase the number of plantings.
If the cost of bread in UK stores were solely based upon the worldwide availability of wheat, we could expect prices to fall sharply. However, production costs have risen and transportation costs have not fallen significantly since the beginning of last year.
These are not the only reasons for the disparity between the fall- off in wheat prices and the finished product. The credit crunch is now taking a major toll on businesses and cashflow has become even more important as credit dries up. Producers are therefore taking the view that they cannot pass on the full savings to the final consumer.
Just as with oil versus petrol pump prices, it is only when competition hots up that we are likely to see prices fall more significantly in the bread market.
No comments yet