Coming to grips with radical change in grain market picture
August 17, 2010
For weeks, revelations about the scorching weather in Russia and its effects on wheat prices have been greeted in grain-based foods with something akin to the seven stages of grief, beginning with shock and denial, moving to anger and bargaining and seemingly headed toward resignation.
While wheat prices have declined $1 a bu or more from season’s highs set at the month’s outset, it’s quite certain prices holding last week above $7 a bu are well above the high side of any baker’s forecast for 2010-11. The underpinnings behind the price strength took clearer shape in recent days in the form of the Aug. 12 U.S. Department of Agriculture supply/demand report, with the 2011 wheat carryover forecast slashed by 141 million bus from the July projection, to 952 million bus.
Not only did the first billion-bu carryover in a generation go “poof,” but the forecast is now for a carryover smaller than the 973 million bus in 2010. At the same time, the wheat crop estimate for Western Europe, the world’s largest, was downsized by 3% from July, a victim of dryness in the west and excessive moisture in the east.
Perhaps of greatest concern last week were mounting indications that the scorching heat in Russia was imperiling the country’s fall seeding prospects and the 2011 winter wheat crop there. For bakers, the situation is particularly challenging because the general inflation in commodity prices prevailing two years ago is absent, and the current environment for raising prices is particularly difficult. Clearly there is no avoiding the conclusion that 2010-11 will be among the most challenging in memory for baking companies.