Promising start makes corn failure tough pill
The weather debacle currently unfolding in the Corn Belt and threatening to worsen as the soybean crop approaches its most crucial development stage has obliterated what only a few weeks ago seemed reasonable expectations for the most attractive bakery flour prices in years.
Hopes for attractive flour prices in any year hinge on a successful corn crop, but the linkage was particularly tight going into 2012-13 because the wheat-corn spread already was so small, driven by corn prices at record highs in 2011-12. Early season hype suggesting record corn yields and a 15-billion bu crop fueled optimism. Despite the dashed hopes, flour coverage going into this summer was more extensive than had been typical in the last four to five years.
Taking advantage of price dips in the spring, most buyers extended contract balances through September and more than a few took partial coverage through December. But the normal wave of subsequent buying that occurs in June and July amid harvest pressure largely has been absent as the drought and heat and the associated price rally have unfolded.
Ingredient buyers for baking and other food processing companies may well feel as though a storm cloud follows them, whichever direction they choose. On the plus side, the totality of the corn crop disaster has raised awareness of the problem to the point that food retailers and customers will have a tough time denying its reality or severity.