Russia, the world’s third-largest wheat exporter, announced a ban on exports of grain for the rest of the year because of wildfires that started last month and continue to lay waste to farmland. The wheat embargo had an immediate impact on the Chicago Mercantile Exchange, the hub of wheat futures, and sent the price soaring on indexes across the world.
Wheat prices have fluctuated significantly over the last 10 years. In 2000 the price was around £60 per tonne, it spiked in 2004 to £115 per tonne and feel back to around £60. In 2007 it rocketed to nearly £200 per tonne and then dipped to around the £100 per tonne. The Russian embargo has created another spike to £150 per tonne.
These price rises are obviously great news for UK farmers if they are able to take advantage. The overall price fluctuations however, make for very difficult business planning from year to year. These are the ups and downs of being tied to global commodity prices.
The US Department of Agriculture estimates that Russia will produce 25%-30% less wheat this year than in 2009. But does this mean that the price of bread has to go up?
If a loaf of bread costs £1, probably 10p-15p of that is actually wheat. The majority of the cost goes into packaging, the marketing and the distribution costs. The biggest cost is the profit margin the supermarkets make. As you can imagine, when the supermarkets put their prices up under the auspices of raw material rises, these prices never go back down when the raw material does.
In 2007, the supermarkets hiked up the price of a loaf when wheat went up to £200 a tonne. Funnily enough, the price of bread never came down in 2008 when the wheat price fell back to £100!