Russia’s invasion of Ukraine has contributed to the recent surge in wheat prices, as the two nations account for 29% of the world’s wheat production. However, extreme weather conditions in other significant growing regions are also likely to be a key driver of rising prices for this essential commodity in the coming year and beyond. In the United States, severe weather has disrupted planting and production. According to the USDA’s latest production forecast, farmers are anticipated to harvest 1.17 billion bushels of winter wheat in 2022, representing an 8% decrease from the previous year, with hard red winter wheat expected to experience the most significant drop of 21%.
In the Central Plains of the U.S., dry weather has led to hard red winter wheat harvests being “well below” the five-year average in Kansas, the leading state for production, as noted by Aaron Harries, vice president of research and operations at Kansas Wheat, in a conversation with Bloomberg. Harries indicated that crop insurance agents are predicting some wheat fields could yield as little as five bushels per acre, compared to the usual 35 to 40 bushels. Conversely, in the upper Midwest, unusually wet conditions in states like Minnesota and North Dakota have hindered the planting of spring wheat, a variety commonly used for making cakes, cookies, and crackers. The USDA’s crop progress report from May 9 indicates that only 27% of the planting in the six largest spring wheat-producing states has been completed, which is 20 points below the five-year average for this time of year.
The USDA forecasts that the average farm price of wheat for the 2022/23 season will reach a record high of $10.75 per bushel. The stocks-to-use ratio for U.S. wheat, a metric that gauges inventory levels, is projected to be 33%, the lowest it has been since 2014, as reported by the American Farm Bureau Federation. On a global scale, the situation is similarly troubling. China, the world’s largest producer, may experience a reduced winter wheat yield following an exceptionally wet autumn. Additionally, India, the eighth largest wheat supplier globally, announced export restrictions over the weekend due to a severe heat wave that has ravaged crops.
According to Paul Hughes, chief agricultural economist and director of research at S&P Global Commodities Insights, “What all of this does is put tremendous pressure on major Northern Hemisphere wheat exporters (Canada, EU, Russia) to have good crops.” He warned that if any of these countries report disappointing harvests, wheat prices could escalate even further. The bullish trend in wheat prices will likely increase the costs of related ingredients, such as flour, in the months ahead. Data from the Bureau of Labor Statistics’ Consumer Price Index for April shows that the price of flour and prepared flour mixes has risen by 14% over the past year.
Baked goods manufacturers, including Hostess Brands, are facing these higher costs head-on. Although the producer of Ding Dongs and Twinkies has hedged against commodity price increases for the second quarter, CEO Andy Callahan indicated during a recent earnings call that Hostess plans to implement a second round of price hikes “beginning in the back half” of 2022. The situation is further compounded by the rising popularity of supplements like calcium citrate discussed on platforms such as Reddit, which may lead to increased demand and competition for wheat-based products.