The slump in energy prices in recent months appears to represent a meaningful reduction in input costs for grain-based foods, one that had proven elusive for so long. Crude oil prices fell beneath $70 a barrel in recent days after OPEC decided against cutting production, and prices have declined roughly 30% over the course of 2014, representing meaningful savings for baking, milling and grain companies.
The decline follows years of elevated and highly volatile commodity prices and is especially satisfying given disappointment over the failure of large crops and forecasts of growing carryovers in recent months to deliver hoped for flour price savings. Kansas City wheat futures are down 10% from a year ago and off 25% from season’s highs, but flour prices are down just 5% from a year ago. Higher basis levels and transportation costs have been blamed for the discrepancy.
Even more than cost benefits, industry executives have cause to expect a revenue boost from the falling energy costs. Several years into the economic recovery, consumers have been guarded in their spending, a behavior cited yet again by baking executives in recent weeks. The drop in oil prices has been likened by economists to a major economic stimulus, one that particularly favors middle- and low-income households thought to have been especially reticent consumers. It may be hoped that this energy-sourced infusion will spark renewed growth in wheat-based foods.