“There are enough wheat stocks - mainly from the US - to make up for the shortage in the short-term, and as such, this price hike is expected to be temporary,” Sapna Naik, director of the processed food and retail team at Dutch financial services firm Rabobank told FoodManufacture.co.uk.
Moreover, the market was not as tight as it was during the 2007/08 grain market rally when the prices of several commodities hit the stratosphere, she argued. “The global corn and soybean markets are better supplied, global rice supplies are adequate and oil prices are also OK, whereas in 2007/8 everything was going up."
But things could change rapidly if the situation did not improve in Russia and the US used up all its surplus stocks, she predicted.
“It's a case of don't panic - at least not yet. The outcome of upcoming winter wheat plantings in Russia, [which begin in late August/early September with a harvest in March/April 2011] will have the major bearing on the prospect of wheat exports being allowed from Russia in the first half of 2011.”
Without sufficient rainfall between now and then, however, the crop could be “severely threatened", she warned. "A second [shortfall] would place unwanted pressure on stock levels - and then we really will be in trouble.”
5-15p on a loaf
As to how this would affect UK food manufacturers, much depended on the length of their flour supply contracts and when they expired, Martin Savage, trade policy manager at the National Association of British and Irish Millers, told FoodManufacture.co.uk.
"After the 2007/8 experience, a lot of companies did look at procurement quite carefully, and some of the larger players will have longer-term flour contracts in place. But smaller ones still have short-term arrangements.
"A lot depends on how and when the retailers respond - but I think we're looking at retail price increases of up to 15p on a loaf."
However, fragile demand and weak retail pricing meant passing on costs to retailers would be tough, he accepted.
Russian spring wheat crop down almost a third
Spot CBOT (Chicago Board of Trade) wheat prices have soared since the beginning of July on the back of production setbacks in the EU, Canada and the Black Sea and the ban on Russian grain exports as drought decimated the Russian spring wheat crop (estimated to be around 42-45m tonnes this year compared with 61.8m last year).
Rabobank has downgraded 2010/11 global wheat production estimates to 644.2m tonnes (vs 679.8m tonnes last year).