Will Price of Wheat Go ^ or __ or < ?

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Bakery industry shielded from wheat price hike, for now
Post a commentBy Guy Montague-Jones, 16-Aug-2010

Related topics: Financial

Rabobank has predicted that wheat prices are likely to ease but warned that the bakery industry may struggle to pass on higher costs to consumers if prices remain high.

Spot CBOT wheat prices have risen 59 per cent since the beginning of July as a result of uncertainty related to poor harvest news in the Black Sea region and elsewhere.

Price easing expected

Despite this upsurge Rabobank said in a note that it expects wheat prices to ease, so long as there is no more significant news supporting the current downward trend. The agro bank said supplies are not as short as they were during the 2007/2008 wheat price spike and stocks remain sufficient to absorb the current dip in production.

This should mean that in the short term the current wheat price situation will have little impact on food processing and bakery firms.

Author of the note, Sapna Naik: “Rabobank’s view is that there are enough wheat stocks to make up for the shortage and as such, this price hike is expected to be temporary. Bakery players’ margins are not expected to be impacted strongly.”

And, if prices remain high?

But if wheat prices remain as high in six months time, bakery firms may then face higher input costs and may struggle to pass these on. This is especially true for bread makers, for whom wheat costs make up about 29 per cent of the variable costs, and for whom there is little flexibility on prices.

The current softness of demand could accentuate the problem as it could further restrict the ability of bakery firms to pass on higher costs to consumers. During the 2007/2008 commodity spike, consumer confidence was higher than it is now, enabling manufacturers and retailers to put up prices but that may be harder this time around.

Faced with higher wheat prices, Rabobank said manufacturers may have to pursue cost cutting measures in the short term and work on safeguarding supply of raw materials in the long term. With input price volatility becoming a fact of life for bakery players, Rabobank said procurement strategy is more important than ever.

“With wheat at a 24 month high, manufacturers’ purchasing decisions on whether or not to lock in the price will affect their competitive position, and increase the risk the risk of margin pressure,” said Naik.

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EU should act to end food speculation after wheat price rises, warn millers
Post a commentBy Mike Stones, 06-Aug-2010

Related topics: Financial

Co-ordinated EU-wide action is needed urgently to end food price volatility induced by market speculation, warns the European Flour Milling Association after wheat prices reached a 23-month high yesterday.

Speaking after Russian Prime Minister, Vladimir Putin announced a ban on grain exports leading to record price hikes, the association highlighted the corrosive effect of food speculators.

Laurent Reverdy, the association’s secretary-general told BakeryandSnacks.com: “We consider that this situation requires a significant reaction of public authorities to fight artificial and detrimental food price volatility induced by market speculation. We are convinced that European coordinated measures by public authorities are necessary to provide a clear signal to all operators on the futures commodity markets.”

Increased volatility

Market speculation is a key reason behind the current price rises, he said. “The rise in cereal prices is market speculation, which seems to be fuelled by statements of speculators exaggerating the current uncertainty over harvest prospects in regions hit by adverse weather conditions. This leads to increased volatility and affects the whole cereals chain.”

The association said it was difficult to gauge the impact of the temporary Russian grain export ban at this stage. But quotations on the EU cereals market have increased since the beginning of July by more than 40 per cent for wheat.

However independent market monitoring reports from the Food and Agriculture

Organisation (FAO), United States Department of Agriculture (USDA), European Commission (EC) and International Grains Council (IGC) all confirm that recent price rises are not supported by market fundamentals.

“Recent cereal crop estimates in key world growing regions (EU included) seem high enough to meet the global demand even with the severe setback in the Russian and Ukraine cereal harvest,” said Reverdy.

Yesterday, Putin confirmed a ban on the exports of grain and grain products from 15 August until 31 December 2010. "I think it is advisable to introduce a temporary ban on the export from Russia of grain and other agriculture products made from grain," he said.

One of the world’s biggest producers of wheat, barley and rye, Russia exported a quarter of its grain output last year.

Following widespread drought and continuing wildfires, the country’s deputy agriculture minister Aleksander Belyayev recently predicted this year’s wheat harvest to be between 70-75m tonnes compared with 97m tonnes last year.

Speaking before the export ban the National Association of British & Irish Millers (NABIM) said it was too early to predict what effect the lower Russian harvest would have on the effect on European flour products such as bread and biscuits.

Too many variables

“The European wheat harvest is likely to be between 5 -10 per cent below forecast but, at present, there are too many variables, to predict the impact on bread and biscuit prices,” said a spokesman.

Meanwhile, EU's internal market commissioner, Michel Barnier, condemned food price speculation last year. “Speculation in basic foodstuffs is a scandal when there are a billion starving people in the world. We must ensure markets contribute to sustainable growth. I am fighting for a fairer world and I want Europe to take the lead on that.”

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Hedging on Russian wheat may mean EU bakery price hikes, economist
By Ben Bouckley, 17-Aug-2010

Related topics: Markets, Ingredients and additives

A leading economist says that industry sources and analysts predicting the Russian wheat export ban will have little impact on EU food prices are “naïve”, and overlook the fact that major futures contracts for Russian wheat are now worthless.

Dr Constantin Gurdgiev from Trinity College Dublin told BakeryandSnacks.com that reassurances about hedging, and that global wheat supplies from the US and elsewhere are adequate to safeguard against further imminent price spikes in the EU, may be misguided

“Many analysts and the media are ignoring this issue, saying that because of hedging price spikes will only be a problem after December 31. But in my view this is naïve, given that a lot of hedging on world markets will relate to banned Russian wheat.”

July wheat spike

Spot CBOT (Chicago Board of Trade) wheat prices have soared since early July after production problems in Russia, the EU and Canada, and the ban on Russian grain exports as drought decimated the Russian spring wheat crop – estimated to be around 42-45m tonnes this year compared with 61.8m in 2009.

Russia officially suspended wheat exports from August 15, with prime minister Vladimir Putin insisting on the need to: “prevent domestic prices rising, preserve cattle herds and build up reserves.”

Putin stated only that the ban would be “reassessed” after December 31, not immediately overturned, and Gurdgiev said Russia was unlikely to export wheat in quantity well into 2011, a view that tallies with a recent Rabobank note predicting exports of only three million tonnes next year.

Gurdgiev said:“Given the importance of grain to food prices for consumers and Russian industry as a whole, principally as animal feed, then I think it is unlikely that major exports will start again quickly.


“Russian government grain supplies totalling around 9m tonnes could be used to make up domestic shortfall, so the official priority will be to rebuild these stocks.”

Effect on EU prices

Martin Savage, trade policy manager at the National Association of British and Irish Millers, told BakeryandSnacks.com that although the EU was not unduly reliant on Russian grain, the scrapping of futures contracts could affect commodity prices here.

“In the UK we don’t use much Russian grain, maybe a little from there and from Kazakhstan, the UK harvest here supplies around 80-85 per cent of our needs.”

“Russia’s main markets are the Middle and Far East and Southern Africa – but since wheat is traded on a global basis with set prices it could affect EU prices.”



Credit ratings agency Moody’s said that major firms such as Kellogg’s and General Mills generally hedged against commodity price rises six to nine months ahead, with wheat costs only a “small portion of [their] total costs”. Conversely, ingredients costs hit own-label manufacturers with lower margins harder, since they cannot afford to hedge.

Savage said that it was difficult to predict how soon price rises could hit consumers:“The media is toying with a figure of 5-15p on a loaf of bread, but it’s hard to predict precisely, since millers and bakers respectively will buy wheat of various qualities (with added premiums for breadmaking) over a range of contracts.”

“Flour prices have risen, and price rises to UK and EU consumers could feed through fairly quickly, but this depends upon numerous variables.”

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Greggs raises alarm over wheat price impact
Post a commentBy Jane Byrne , 10-Aug-2010

Related topics: Financial

Leading UK bakery firm Greggs predicts an increase in ingredient cost inflation in the second half of 2010, following the recent hike in wheat prices.

However, despite the “challenging trading environment” ahead, the CEO Ken McMeikan that Greggs remains on track “to deliver another year of progress.”

In trading results for the first 26 weeks to 3rd July 2010 released today, the firm said that total sales in the period increased by 2.9 per cent to £321m compared to £321m in 2009 and like-for-like sales rose by 0.7 per cent.

While profit before taxation increased by 12.3 per cent to £18.6m from £16.5m the previous year.

Supply chain investment

“We have delivered a resilient first half performance under challenging conditions … Our accelerated shop opening and refit programmes are progressing as planned, and delivering encouraging early results. We are now set to commence the first phase of our supply chain investment programme,” continued McMeikan.

The CEO said as a result of increasing production capacity to support new shop openings, Greggs is budgeting total capital expenditure for the year at £45-50m against the £30.3m spent in 2009. He said that this would be financed from the firm’s strong cash flow.

Commenting that the pressure on the trading environment looks likely to increase in the second half of the year due to market volatility, the CEO said the firm remain focused on managing costs tightly, through investing in its bakeries “for greater efficiency and capacity for growth and realising the benefits of a strong, centrally run business.”

Wheat prices

Separately, the European Flour Milling Association said last week that market speculation is a key reason behind the current wheat price rises.

Laurent Reverdy, the association’s secretary-general said that: “The rise in cereal prices is market speculation, which seems to be fuelled by statements of speculators exaggerating the current uncertainty over harvest prospects in regions hit by adverse weather conditions. This leads to increased volatility and affects the whole cereals chain.”

He said that coordinated EU-wide action is needed urgently to end food price volatility induced by speculators.

The association said it was difficult to gauge the impact of the temporary Russian grain export ban at this stage. But quotations on the EU cereals market have increased since the beginning of July by more than 40 per cent for wheat

And speaking before the export ban the National Association of British & Irish Millers (NABIM) said it was too early to predict what effect the lower Russian harvest would have on the effect on European flour products such as bread and biscuits.

“The European wheat harvest is likely to be between 5 -10 per cent below forecast but, at present, there are too many variables, to predict the impact on bread and biscuit prices,” said a spokesman.

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Rank Hovis announces flour price hike
Post a commentBy Sylvia Macdonald, 11-Aug-2010

Related topics: Financial

Rank Hovis is to increase the price of flour by £89.37 per tonne, effective 6 September, Lawrence Watson, head of sales and marketing, revealed exclusively to our sister publication British Baker earlier this week.

He said: “There has been a 70 per cent year-on-year rise in raw material costs. This has been driven by the prediction of a 20mt drop in the global harvest, which has impacted heavily on world prices.”

He added: “Over the summer, extreme drought conditions have cut the Russian crop by 25 per cent and led to a Russian decision not to export wheat. Canada has also lost 30 per cent of its crop in floods and yields are down across France and Germany. It is still too early to predict the UK harvest, but yields look like being 10-15 per cent down following results from the the first 10 days of harvesting.”

The UK’s other major supplier, ADM Milling, is also blaming climactic forces for the major impact on prices. Tim Cook, managing director of ADM Milling, told British Baker: “The significant increase in wheat prices is of great concern to both ourselves and our customers. Over recent years, we have all come to recognise that the price of UK wheat is subject to influences that go beyond our shores and the size/quality of our domestic crop. We will continue to monitor the situation.”

According to ADM, excess rainfall in Canada during the planting period left a significant number of acres unplanted. Russia’s ban removes a source of Black Sea wheat from the market, which has been the most competitively priced wheat in Europe over the last few seasons.

Lower wheat production this year in the EU and early indications of dryness concerns in Australia, will also continue to influence the wheat market over the next few months.

As a result, there has been speculation from fund money over the last five weeks, which has contributed to current price volatility.

A spokesman for ADM added that although wheat prices have significantly increased, the market was not in the same position as it was in 2007/08, when global wheat stocks were very low, as there have been two seasons of stock replenishment.

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Too early to tell impact of high wheat prices on flour products
By Mike Stones, 04-Aug-2010

Related topics: Financial, Ingredients and additives

It’s too early to predict the impact of huge rises in wheat prices on European flour products such as bread and biscuits, according to the National Association of British & Irish Millers.

Disputing UK press reports of a 5 per cent hike in bread prices, a NABIM spokesman told BakeryandSnacks.com: “The European wheat harvest is likely to be between 5 -10 per cent below forecast but, at present, there are too many variables, to predict the impact on bread and biscuit prices.”

Much will depend on the actual harvest and when buyers source their flour stocks. Also the favourable ratio between grain stocks to consumption should help to mitigate upward pressure on prices, he said. “The current stocks-to-uses ratio is 28 per cent which is quite a big increase in supply (than formerly).”

But, the longer the speculation persisted, the bigger the likely impact on prices, he acknowledged.

Drought and wildfires

NABIM’s comments follow news that wheat prices have increased 50 per cent since late June to reach a 22-month high after drought and wildfires devastated Russian crops.

Earlier this week, Chicago Board of Trade (CBOT) wheat prices for September delivery exceeded $7-a-bushel level in United States trade for the first time since September 2008, before falling back to $6.93.

The price rises have fuelled speculation about higher prices for flour-related products such as bread and biscuits.

Gary Sharkey, head of wheat procurement at Premier Foods, manufacturer of Hovis bread, told the Financial Times that the industry would be "unable to ignore a 50 per cent rise in wheat prices".

Higher wheat prices could also affect meat and poultry prices since many European cattle are fed wheat and wheat derivative products.

But another leading food manufacturer told the BBC higher wheat prices on commodity exchanges would not necessarily lead to higher prices in supermarkets.

"Although there is inflationary pressure on commodities like wheat in the futures markets, food producers will want to wait to see how harvests have performed around the world before making any decision on prices," said the spokesperson for the unnamed company.

Wheat exporter

Russia was the world's fourth largest wheat exporter in the 12 months to June after the US, the EU and Canada, according to the US Department of Agriculture.

Heat waves and drought have led to wildfires in several regions in Russia.

Earlier today Russia decided to ban grain exports until 1 December

The BBC quoted Russian Prime Minister Vladimir Putin as saying: "I think it is advisable to introduce a temporary ban on the export from Russia of grain and other agriculture products made from grain."

Earlier in the week the country’s deputy agriculture minister Aleksandr Belyayev said there were no plans to restrict its grain exports at present. "[Restrictions] will not be imposed yet. The…situation today does not demand this. It is very easy to reduce exports, but it is very hard to increase it," he said.

Russia has high levels of grain in reserves and will start using those, he added.

Belyayev estimated this year’s harvest at between 70-75m tonnes compared with 97m tonnes in 2009

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fyi,

http://www.youtube.com/watch?v=bzmga3OQxCs

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How much is a tonne of flour in canada?