With prices turning downward, with the exception of a modest gain in spring, demand for bakery flour expanded moderately last week.
The pickup in sales activity was significant compared with the near absence of bookings the previous two weeks when prices rallied from 32-month lows. Buyers last week included bakers who had yet to cover November-December requirements and who were operating on a hand-to-mouth basis. They took advantage of an early-week price dip and extended coverage through December with others adding coverage into March. A small amount of futures business was covered deep into 2010. Millers said certain customers reacted to market developments by taking options coverage to protect November-March positions from a dramatic price rally.
With the latest bookings, flour coverage for November-December was estimated at 75% or higher, with January-March bookings thought to be roughly 50% of prospective flour production. Coverage among users of soft wheat was a bit heavier than buyers of hard winter and spring grades.
For bakers who have yet to cover, finding the right spot to book in what remains a volatile market has not been easy. Powerful and reasonably consistent downward momentum since February 2008 prompted some flour buyers to hold back, but recent concerns about planting progress in soft red winter wheat states factored into flour buyers’ decisions to extend balances.
“Our customers are saying they ‘really would buy this time,’ if wheat futures in Kansas City fall beneath $5 a bu,” one miller said. “In Chicago, they are hoping for a number around $4.80.”
Setting pricing targets was hardly the only issue flour buyers grappled with last week. With high protein cash wheat premiums at levels above historical averages, flour buyers continued to explore alternatives with blending opportunities carefully scrutinized in an effort to save money. A growing number of requests for custom wheat mixes posed challenges to mills as well.
Flour grind remained relatively light. Southwest and Northeast mills ran five to 5½ days, Upper Midwest and Central states 5½ to six and Southeast 5½. West coast mills averaged six days plus.
Sales of national and regional brands of family flour remained seasonally brisk last week.
In keeping with seasonal norms, promotional activity gained momentum. Some discounting was in evidence at supermarkets for national brands in certain parts of the country, with prices of $2.25 (from $3 list prices) as an ongoing seasonal price ahead of “hotter” ad promotions expected later in the year. Among promotions expected to be popular are two 5-lb bags for $4, or even two bags for $3.
Overall demand trends were characterized as “pretty stable” with volumes up in September. Given the uptick was the first in about 50 years, the industry was skeptical about whether the improvement would be sustained. Still, with the economy showing statistical signs of improvement, it appeared that family flour was behaving more like a lagging indicator of the economy than a leading indicator.
Bookings of semolina, granulars and durum flour were modest last week. Prices declined modestly. The price of hard amber durum in Minneapolis held steady at $5.80 a bu.
Activity was quiet in part because many industry representatives were in New York attending World Pasta Day festivities.
Additionally, pasta makers already are well covered through the end of 2009 and even through the first quarter of 2010. A smaller but still significant amount of coverage has been taken for April-June and a smattering of July-September bookings have been contracted as well. A small flurry of the deferred business was conducted last week.
The North Dakota durum harvest was mostly completed a couple of weeks ago, but there remained a small amount of durum to combine in Montana.
With large crops harvested in both the U.S. and Canada, durum supplies will be ample for the 2009-10 crop year.