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Dip in wheat prices offers brief relief for bakers

By Lindsey Partos , 24-Jul-2008

Bakers and snack makers can enjoy some relief in price for wheat as bearish fundamentals for this valuable commodity provide a rosier, albeit hesitant, outlook for supplies.

The price of wheat fell to ₤135 per ton this week, down from ₤155 per ton at the beginning of June.

The baking and snack industry, like all other arms of the global food industry, have seen soaring prices for soft commodities, notably wheat, corn and soybeans, cutting sharply into revenues.

But prices on the futures market for these popular commodities, from which staple ingredients such as starch, flour and oil derive, have slowed down marginally over the past week.

On Wednesday corn closed on the Chicago Board of Trade at $5.71 a bushel, a significant drop from the $7.50 mark in mid-June, although far superior to the $3.20 a bushel that prices demanded one year ago.

Soybeans pulled in prices of $13.94, down from about $15.15 one month ago."The fundamentals for wheat are bearish," Mike Mendelson, senior economist at the UK's Home Grown Cereals Authority tells BakeryandSnacks.com.

Although, he warned, while expectations for forthcoming wheat supplies are relatively buoyant, with harvest time for wheat in the northern hemisphere nearly upon us, potential stocks are vulnerable to uncertain weather conditions.

But under current conditions, wheat in 2008 is expected to bring in the second largest crop on record - 650m to 665m tonnes.

With demand estimated at 647m tonnes, this would leave roughly 15 million tonnes for valuable global stock piles, currently swaying at a meagre 30 year low.

Indeed, overall world cereal production in 2008 is forecast to rise by 2.8 per cent to a record 2 180 million tonnes, according to fresh figures from the UN's Food and Agriculture Organisation (FAO).

But notwithstanding this more encouraging outlook, the food industry can still expect tightening prices to roll into next year.

"Despite the anticipated increase in world output, cereal markets will remain tight in 2008/09," warns the FAO report.

Total cereal supply - carry-in stocks plus production - will barely exceed the anticipated use and the world cereal reserves will recover only marginally from the current estimated 30-year low, adds the UN group.

And international cereal prices are still remaining at high levels with tight maize supply in the US underpinning prices of major cereals.

All soft commodities reacted to the recent flooding in the US corn growing areas that set prices soaring. Although a separation between the wheat and corn markets could be imminent as the new wheat harvest moves into the marketplace.