Wheat price volatility reflects concerns over Australian floods

By Jane Byrne

- Last updated on GMT

Related tags: Wheat, Wheat prices, Term, Australia

US wheat futures experienced volatility this week with traders concerned that floods in Australia would hamper transportation of wheat and export commitments would not be met.

Australia is the world's fourth largest exporter of wheat after the US, Canada and Russia and an extensive area – the size of France and Germany combined – in the Queensland region has been hit by substantial flooding.

"The Australian situation is moving away from harvest woes towards logistical problems with flooding hampering exports from the east coast,"​ Britain's Home-Grown Cereals Authority said in a market report yesterday.

Global wheat prices have risen by 37 per cent from October 2009 through to September 2010. Moreover, they have been steadily rising since August 2010 when widespread fires in Russia prompted a self-imposed ban on wheat exports from that country.

More recently, price rises have been reflecting the fact that wheat production was also lower than expected elsewhere.

ADM, the US-based commodities trader, has recently issued a warning that there is a “significant global shortfall” of high-quality wheat suitable for bread manufacturer.

But, Gordon Polson, the director of the Federation of Bakers in the UK, said big bakers have minimised the impact of short term fluctuations and ensured good continuity of supply through long-term contractual arrangements. However, Polson told this publication late December that: “If the long term trend is upward, as it appears to be, then this will not make them immune.”

Sustained high wheat prices could be difficult for bakers to deal with financially. This is especially true for bread makers, for whom wheat costs make up about 29 per cent of variable costs.

Rabobank warned earlier in the year that the current softness of demand could accentuate the problem as it may further restrict the ability of bakery firms to pass on higher costs to consumers.

Related topics: Market Trends

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