Surging Wheat Prices Force Bakers to Make Difficult Decisions (PDF)

# Surging wheat prices force bakers to make difficult decisions A worker inspects wheat grain at a facility in Mykolaiv, Ukraine. The Russia-Ukraine conflict has led to elevated wheat futures since Ukraine is one of the world's key grain producers. ## Booking more contracts now or later present r...

# Surging wheat prices force bakers to make difficult decisions A worker inspects wheat grain at a facility in Mykolaiv, Ukraine. The Russia-Ukraine conflict has led to elevated wheat futures since Ukraine is one of the world's key grain producers. ## Booking more contracts now or later present risks to future of businesses Blair Hyslop, co-owner of Mrs. Dunster's Bakery, in Sussex, NB, has been getting emails from flour companies, offering to lock in a price for future shipments. Each week, the price gets higher. The independent bakery needs up to four million pounds of flour a year to keep producing doughnuts and bread rolls for grocery chains across Atlantic Canada, and its current flour contracts only run until August. *If Hyslop doesn't lock in more contracts before then, he'll pay the market price when his flour runs out.* That could be trouble, if inflation keeps up this frantic pace. But there's also the risk by booking more contracts now, he's inadvertently locking himself into a peak rate. "We could take our chances and gamble, but you're betting the future of your business", Hyslop said in an interview. Until recently, the plan at Mrs. Dunsters was to stick it out at least until the spring. If the crop forecast were strong, prices would go down. And this harvest, Hyslop thought, couldn't possibly be worse than the last. His annual flour costs are already up roughly 52 percent, year-over-year, mostly because of last summer's extreme drought across Western Canada. But then Russia invaded Ukraine, sending global commodity markets, and wheat prices in particular, into a panic - forcing Canadian bakers such as Hyslop into some tough calls. "These are big decisions for a small food company like us to be making," Hyslop said. "But I'll tell you, if we make the wrong decision, we'll feel it." ### Wheat futures have spiked in the past week over concerns that the war will disrupt the planting season in Ukraine and continue choking off exports from one of the most important grain-producing regions in the world. *Ukraine and Russia export a third of the world’s wheat, and a supply reduction on that scale could still be affecting the price of flour in August, when Mrs. Dunster’s flour contracts expire.* The Food and Agriculture Organization of the United Nations is warning of a food security crisis in Ukraine. Farmers are fleeing to conflict zones and could miss the spring planting season, making it even harder for people to access food in the country, FAO said. The invasion is liable to have serious impacts on food security outside Ukraine, if countries that depend on the region's grain crops continue to be cut off from shipments and then have to pay higher prices in a tighter global market. "It's tragic in the Ukraine, but it's wider than that," Ted Bilyea, a distinguished fellow at the Canadian Agri-Food Policy Institute, said in an interview. "This is lunacy". Bloomberg reported on Thursday that wheat futures were at their highest level in 14 years, with May contracts up over US$11.34 per bushel at the Chicago Board of Trade - an exchange that heavily influences Canadian grain prices. A good harvest across the Canadian Prairies this year would help boost global supply and relieve some of the inflationary pressure. But to do that, Canada needs rain to bounce back from last year's drought. "We really need a wet spring to recharge the soil moisture," said Tom Steve, the general manager of the Alberta Wheat and Barley Commissions. With major reductions in crop yields last year, some farmers don't have the same amount of grain left in their storage bins as they normally would - which means they aren't able to take full advantage of the recent spike in wheat prices. At the end of 2021, Canada's total stocks of wheat were down 38 percent year over year to 15.6 million tonnes, according to a Statistics Canada report last month. The Baking Association of Canada said the invasion of Ukraine isn't likely to affect grain supplies for domestic baking operations, but it does risk driving up production costs – which are already high due to last year's drought. "These forces are expected to increase global market prices which will in turn translate into higher costs for Canadian flour - cost which may need to be passed onto consumers," BAC executive director Martin Barnett said in a statement.