Wheat futures are rising and food prices may be next

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Wheat futures rose about 5.35% on Tuesday, reaching unprecedented prices in 2008. Higher prices make wheat more expensive for food producers who are likely to pass these consumer costs.

Ukraine and Russia together account for about 14% of world wheat production, according to Gro Intelligence, an agricultural data analysis firm. Both countries account for about 29% of all wheat exports. Prior to the Russian invasion, Ukraine was on track for a record year of wheat exports, while Russian wheat exports are slowing, according to the US Department of Agriculture.

“It couldn’t have happened at a worse time,” said Rob Mackie, president and CEO of the American Bakers’ Association.

As wheat prices are already rising, the conflict abroad is putting even more pressure on the still-sick supply chain. Russia is the largest exporter of wheat, while Ukraine is in the top 5. The two countries compete in export markets such as Egypt, Turkey and Bangladesh.

“Depending on how this turns out and how long it will last, wheat growers [in Ukraine] you may not be able to plant spring wheat, corn and other things. So a year can pass without any harvests, “Mackie added.

This is likely to raise the price of consumer goods in the United States such as cereals and bread. Cereals and baked goods have risen 6.8 percent in the past year due to inflation, according to the US Department of Labor. Consumer prices usually lag behind market prices for wheat, corn and grain – as these commodity prices are negotiated in advance. This means that the effect may not be felt for weeks or months.

Russia’s actions have also led to serious disruptions in Ukrainian ports, hampering the export market.

“You have all sorts of logistical constraints,” said Jim Hennegan, senior vice president of agribusiness at Gro Intelligence. For example, “Ukrainian ports [are] closed to commercial traffic, “Hennegan said. There were also reports of merchant ships being attacked.

Disruptions are straining global wheat supplies, even as demand remains the same or increases. And with less supply, prices are rising even more than during the pandemic.

Global food prices have risen by as much as 28% in 2021, according to the Food and Agriculture Organization. Supply chain disruptions and extreme weather conditions have contributed to higher prices.

The current situation “only contributes to the additional inflation in food prices that we are witnessing,” Hennegan 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 U.S. trade group.

“For the US market, we import only about 8% of all the necessary things [consumer packaged goods] industry, “she said.” That’s pretty minimal. “Most imported items come from Mexico and Canada, she added.

Higher wheat prices are good news for American farmers, as more demand may be directed to the United States. However, although American companies may not be directly exposed to disturbances in Ukraine, they are also not immune to them. “It’s a global economy,” Dennis said. “The pressure on prices will be something that is felt all over the world.”

Hennegan of Gro Intelligence said that by reducing global supplies, US wheat producers could export more products. “Many times you will see demand return to the United States … when you have global events that stop surplus exports,” he said. “But it comes at a higher price.”

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

“Over the next few months, you will see what food companies will do … with the higher prices they have to contend with,” Hennegan said. Manufacturers of food and consumer goods can choose take on some of the price increases, but are more likely to continue to pass them on to consumers, he noted.

The producer price index, which tracks average changes in the prices at which U.S. producers receive payments for their goods and services, rose 9.7 percent in the 12 months ended January, unadjusted for seasonal fluctuations. , the Bureau of Labor Statistics announced in February.

And they are likely to raise prices further as investment costs rise, Henegan said, especially because wheat is not the only crop that is becoming more expensive.

Prices of other agricultural commodities are rising, such as corn and soybeans, not to mention oil. “He will give [consumer goods makers] even more reason to think about moving forward with these price increases, “Henegan said.

Anneken Tappe on CNN and Julia Horowitz contributed to this report.