March 31, 2023


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Wheat futures are skyrocketing, food prices may be next

Wheat futures are skyrocketing, food prices may be next
Wheat futures rose about 5.35% on Tuesday, hitting prices not seen since 2008. Rising prices are making wheat more expensive for food makers, who are likely to pass those Costs to consumers.

Ukraine and Russia together account for about 14% of global wheat production, according to Gro Intelligence, an agricultural data analytics firm. The two countries supply about 29% of the total wheat exports. Before the Russian invasion, Ukraine was on track for a record year in wheat exports, while Russian wheat exports were slowing, according to the USDA.

This cannot come at the worst of times,” said Rob Mackey, president and CEO of the American Bakers Association.

With wheat prices already soaring, the conflict abroad is putting more pressure on a supply chain that is still struggling. Russia is the largest wheat exporter, while Ukraine is in the top 5 countries competing in export markets such as Egypt, Turkey and Bangladesh.

“Depending on how that turns out and how long it lasts, wheat farmers [in Ukraine] You may not be able to grow spring wheat, corn and other things. Therefore, they may go a year without any crops.”

This will likely lead to higher prices for US consumer goods such as grain and bread. Cereals and baked goods rose 6.8% last year due to inflation, according to the US Department of Labor. Consumer prices usually lag behind market prices for wheat, corn, and grains – these commodity prices are contracted in advance. This means that the effect may not be felt for weeks or months.

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Russia’s actions also caused major disruption to Ukrainian ports, hampering the export market.

“You have all kinds of logistical constraints,” said Jim Heneghan, senior vice president of agricultural business at Gro Intelligence. For example, “Ukrainian Ports [are] “Closed to commercial traffic,” Heneghan said, there are also Reports of merchant ships being attacked.

The disruptions are shrinking global wheat supplies, even as demand remains the same or rises. And with supply in short supply, prices are rising more than they were during the pandemic.

International food prices They rose as much as 28% in 2021, according to the Food and Agriculture Organization of the United Nations. supply chain disruptions And the severe weather contributed to the increase in prices.

The current situation “only adds to the additional food price inflation we are seeing,” Hengan said.

Food prices in the United States are not immune

Most consumer brands in the United States do not rely on imported ingredients, said Katie Dennis, who leads communications and research for the Consumer Brands Association, a US trade group.

“For the US market, we only import about 8% of the total materials for [consumer packaged goods] “It’s very small,” she said, adding that most of the imported materials come from Mexico and Canada.

Higher wheat prices are good news for US farmers, as more demand could shift to the US. However, although US companies may not be directly exposed to the turmoil in Ukraine, they are not immune to it either. “This is a global economy,” Dennis said. “Pricing pressure will be something felt all over the world.”

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Heneghan of Gro Intelligence said that with global supply tighter, US wheat farmers could export more products. “Often you’ll see demand return to the US…when you have global events that wipe out exportable surpluses,” he said. But it comes at a higher price.

That may be good news for American farmers, he added, but not to consumers.

“Over the next few months, you’ll see what the food companies are going to do … with the higher prices they have to contend with,” Heneghan said. Producers of food and consumer goods may choose It absorbs some of the price hikes, but they will likely continue to pass it on to consumers, he noted.

The Bureau of Labor Statistics reported in February that the Producer Price Index, which tracks the average price changes that US producers charge for their goods and services, rose 9.7% in the twelve months ending in January, not adjusted for seasonal fluctuations.

They are likely to raise prices further as input costs rise, Hengan said, especially since wheat is not the only crop that is getting more expensive.

The prices of other agricultural commodities are rising, such as corn and soybeans, Not to mention the oil. “I will give [consumer goods makers] Heneghan said there is more reason to consider going ahead with these price increases.

CNN’s Anneken Tappe and Julia Horowitz contributed to this report.