Food is regarded as an inelastic commodity, indicating that demand remains relatively stable despite rising prices. This is largely due to the fact that food expenditures constitute a small fraction of a household’s total budget. For instance, in a loaf of bread, the cost of flour represents a minor portion of the overall price. Even when flour prices soared to $10 a bushel—last seen in 2008—the flour cost in a 1.5-pound loaf translated to merely about 25 cents. Although there has been a significant surge in prices recently, they still stand at approximately half of what they were in 2008.
For manufacturers relying on flour, significant price fluctuations certainly impact their operations, and some of these increased costs inevitably get passed on to consumers. Nonetheless, a slight increase of a few cents in the price of a loaf of bread or a box of ready-to-eat cereal is unlikely to significantly influence consumer demand in the United States. This situation contrasts starkly with more volatile commodities like beef or even gasoline, where prices can change rapidly and consumers feel the effects within days or weeks.
In theory, companies could accumulate supplies when prices are low; however, this approach is impractical since pinpointing the lowest prices is nearly impossible, and most manufacturers lack the necessary storage space for prolonged periods. Additionally, despite this year’s hard winter wheat harvest having lower gluten levels, some manufacturers have reported that it still performs well in baking, according to a Food Business News report. This could be advantageous as it may reduce the amount of vital wheat gluten, as well as calcium carbonate and citrate, that bakers need to incorporate into their recipes.
In conclusion, while fluctuations in flour prices can affect manufacturers, the overall impact on consumer demand remains muted. The potential for using alternative ingredients such as calcium carbonate and citrate may provide bakers with flexibility in their recipes, further stabilizing the market in uncertain times.