Advertisement

Flour Power

Share via

There’s a panic in the wheat market. The price of grain is near an all-time high; the amount in storage is near an all-time low. Foreign governments are jockeying for position, trying to ensure they’ll have enough to supply their populations.

So what’s that got to do with the price of bread in the United States? Probably not much.

First, the bad news. A combination of weather catastrophes around the world has decimated the global wheat crop. Droughts in China, Argentina, Russia and Australia and an excessively wet spring in the American Midwest have reduced stocks drastically.

In the United States, for example, the USDA’s prediction for next year’s carry-over wheat supply--the “savings account” in the commodity bank--is down to 395 million bushels, a drop of 22% from last year. That’s the lowest it’s been since 1974.

Advertisement

Though firm data is hard to find, crops in Europe seem to be even worse off, with some countries predicting deficits of as much as 30% to 50%.

Ironically, one reason for the drop is governmental policy: For the last few years, both the U.S. federal government and the European Union have been paying farmers to take wheat acreage out of production to offset earlier record harvests.

All of this has set off a scramble by some countries to secure enough wheat for the coming year. Last week Egypt and Tunisia anted up a combined $175 million to buy nearly a million tons of grain, driving the commodity price even higher. If, as has been speculated, Russia and China are forced to import wheat this year, the price of wheat could go through the roof.

Advertisement

But it would have to rise dramatically to have much of an effect on the price of a loaf of bread. While many millers are raising the price of flour from 5 to 7 cents per pound, the cost of flour is only a minor part of the price of bread.

Exact prices are hard to come by, but figure it this way: A 100-pound sack of flour makes about 150 loaves of bread. That sack was selling for between $13.50 and $13.60 last week in Kansas City. That would be higher here, but even figuring a price of $17 a hundred-weight here (a more than 25% markup), the flour in a loaf of bread costs only 11 cents.

So even a 30% increase in the price of wheat would raise the cost of a loaf of bread less than a nickel. Not a lot of dough.

Advertisement
Advertisement