U.S. wheat prices have jumped nearly 50 percent over the past few months thanks to a combination of events. Drought and wildfires in Russia prompted that country to ban exports through next year -- cutting supply on the international market. And Canada says its production will be lower than expected. But it's not yet clear whether this will lead to higher prices for bread and other products that use flour.
At the beginning of the summer, wheat was selling for about $5 a bushel in the U.S. Then Russia announced its export ban, and prices rose nearly 50 percent to more than $7 a bushel. Prices have since settled at just under $7, but there are concerns that prices could remain high over the next year.
“It has put a lot of stress on the international market for wheat,” says Michael Denton, partner at business consulting firm Oliver Wyman. “Inventories are still at a relatively decent level, but there's a lot of nervousness about how that's going to play out as the season comes to harvest.”
Denton co-authored a report that says higher prices could cost the food industry $2 billion this year, and considering the current economy, those companies may not be able to pass those extra costs along to consumers.
“We purchase approximately 13 million pounds of wheat a year,” says Jim Greco, CEO of Bruegger’s Enterprises, which has 295 bagel bakeries across the U.S. and Canada.
Fortunately for Greco, he doesn't have to decide whether to raise prices quite yet. Bruegger's buys its wheat a year in advance, and the company hopes prices will level out in the meantime. But if they don't, Greco says a 50 percent increase in wheat prices would be difficult for his company to digest.
“When you have extraordinary moves in a market like this one -- approximately 50 percent in just a short period of time -- there’s only so much manufacturers can absorb,” he says.
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