Wheat supplies shrinking in bad news for prices

Global reserves could sink to a 5-year low with supplies in exporting nations strained

Crop losses in two of the world's biggest wheat exporters and quality concerns in a third have pushed prices to multiyear highs, adding to worries about food price inflation for millions of the world's most vulnerable.

Drought and heat continued to fry Canada's wheat in July, months after a brutal winter hit the Russian crop. Those losses will only be partially offset by gains elsewhere for a crop planted on more land globally than any other, and used for basic foods like breads, pasta, and breakfast cereal.

Wheat futures surged last week as the US Department of Agriculture slashed its forecast for Canadian and Russian production, pulling down global stockpiles and trade. A smaller US crop is also adding to the pressure.

The impact will be felt by households and governments alike, especially in poorer nations reliant on imports. And in the US and elsewhere, higher bread costs would be another pressure point for a food supply chain already grappling with labour shortages and logistical snarls.

"Consumers are going to see higher prices, no question about it," James Doyle, executive vice president at King Milling Co. in Lowell, Michigan, said in an interview. "The price that we pay for wheat as the futures rise, whatever that price is at the time a baker calls, gets translated right then and there into the flour price."

Wheat's rally to multiyear highs has also been contra-seasonal, coming when grain silos in the Northern Hemisphere are typically starting to bulge with freshly harvested supplies. Global reserves could sink to a five-year low, the US government forecast, with supplies in exporters particularly strained.

"The market's looking at a global deficit now," said

Carlos Mera, head of agricultural commodity markets research at Rabobank in London. "That heightens food inflation concerns. Wheat is an essential food staple."

A wheat export price index calculated by the London-based International Grains Council is now up 46 per cent on the year. Separately, the UN index of global farm-commodity prices is flirting with a decade high.

As the basis of everything from French baguettes to Middle Eastern flat-breads to Asian noodles, wheat prices have a more direct bearing on consumers than crops like corn and soybeans, which are mostly fed to animals.

Commodity fluctuations can take time to trickle through the supply chain. Retail prices can also be sticky, and in some cases food costs are subsidised by governments. But higher costs now mean the grain could stay elevated until harvests in the Southern Hemisphere in early 2022 relieve the pressure.

Freight costs to transport grain around the world are also surging. In all, the blow looks particularly harsh for poorer, import-reliant nations already battered by the coronavirus pandemic.

The USDA last week lowered its 2021-22 wheat import forecasts for the North Africa, S-E Asia and Afghanistan.—Bloomberg