WASHINGTON — During the past year, supermarket retailers watched as federal mandates for renewable fuels helped double the price of corn, raising the price of animal feed, and as a result, steadily inflating the cost of products like meat and poultry. Bakeries have been witnessing a similar phenomenon, with the price of wheat and flour steadily rising throughout the past year. In recent weeks, wheat's price per bushel has approached record highs in the commodity markets, and the impact has already filtered down to retail. Wegmans Food Markets, for example, recently announced that it had been forced to raise prices on several of its in-store bakery items by 10 to 50 cents. Daren Coppock, chief executive officer of the National Association of Wheat Growers, spoke with SN about why prices for the crop have been hitting historic highs, and what to expect in the coming months.
SN: How high are wheat prices right now, historically speaking?
DC: Prices are probably as high in nominal terms as we've ever seen them. The last record was in 1996, when we briefly hit [about] $7 per bushel in Chicago. Now we're at $9 plus in soft wheats, and $10 to $11 in hard wheats, and we may not be done with increases in spring wheats yet. But the other commodities with which we compete for acreage have also been quite a bit higher. So, I don't think [higher prices for farmers] will result in a huge acreage shift from corn or soybeans into wheat. There will be some that move, but I don't know how many.
SN: What are some of the factors that have led to this recent run-up in prices?
DC: It's really two things. One is that for the past six years running, we've consumed more wheat globally than we've produced. But there have also been weather problems with our crops: Australia has had a couple of nasty droughts, the Canadian crop didn't turn out too well, Europe has had some weather problems — nobody has produced a really big wheat crop for several years. We're finally at the point where global stocks are at 60-year lows, and the market is responding. The other issue is that domestically, there is intense competition for acreage between wheat and corn, driven by biofuels.
SN: How much of an impact has this competition had for acreage, and will higher prices lead some farmers to shift to wheat production?
DC: We've seen what are historic spreads for wheat over corn. And those spreads have widened. So, the market is clearly trying to buy back wheat acres. I just don't know how high prices are going to have to go [for acreage to begin shifting], but it's certainly going on.
SN: Why is the world consuming more wheat than it is producing? Has demand or consumption increased in any particular country or region?
DC: It's just production problems. There has been steady demand, but we've had two huge droughts in Australia, for example. They usually produce 20 million metric tons of grain [per year] and they've been at 10 or below for two of the last three years. And there have been droughts for six years running in parts of the United States. So we just haven't been producing enough to keep up with demand.
SN: What effect has this increase in wheat prices had on flour prices?
DC: I'm sure they've gone up. I know that the price of baked goods is going up. But, wheat prices aren't the only reason that those retail prices are going up. Some of it's wheat prices, and that's going to affect flour prices and the bakers that use a lot of flour. But it's also labor costs, transportation costs, fuel costs, marketing costs — all of those things have gone up dramatically.
SN: What will it take for wheat prices to moderate?
DC: It's going to take somebody growing a big wheat crop somewhere. And that's going to happen. It's a matter of when, not if. USDA's price projections for the current marketing year are in the mid-$6 range, which is quite a bit below where the futures markets are running now. So, they anticipate that somewhere a large crop will be grown, and I think that's a fairly logical assumption. We just don't know who it will be yet. Hopefully, it will be the United States.