Wheat prices expected to rise

Wheat prices are expected to rise after a US drought affects the maize market putting pressure on wheat supplies and export concerns in Russia.

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

He also said that the global wheat supply could be hit even more by fewer exports from Russia, which has suffered from dry weather.

Watts said: “Because of the US drought there’s been a big impact on the US grain market [which includes maize]. What happens in the US maize market has a big impact on global wheat prices”.

Over two-thirds of the world’s feed grain is maize. Wheat is used to much less but when the maize market is struggling, feed users rely on wheat as an alternative.

According to information from IndexMundi, maize prices shot up over a fifth 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.

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 over a third to £245.50 by July.

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

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

If there are lower exports available, there will be less completion in the global wheat market which could push up prices.

About 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 $52m in the next quarter, as an extremely hot summer and drought has taken its toll and result in commodity price hikes.

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

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