Food: thanksgiving required as strong harvests scythe wheat price

Food prices are soaring. In Britain they are rising at the highest rate since 2008, the British Retail Consortium says. Yet there is some good news from an unpromising source. A bumper Russian harvest has made wheat cheaper. The price of Chicago wheat futures is back where it was in January, at $8.03 a bushel, having fallen by two-fifths from its March peak.

High yields from the Russian breadbasket — along with a partial resumption of Ukrainian exports — have relieved what threatened to be a devastating squeeze. Russia and Ukraine typically account for a fifth and a tenth of global exports, respectively.

The disruption threatened countries such as Egypt, which depends on the combatants for the vast majority of its imports. It has been able to build up seven months of wheat reserves, albeit at higher prices — exacerbated by the strength of the dollar — than budgeted for.

War is not the only factor playing havoc with prices. Drought is reducing the yields of many crops. France, the EU’s top grain producer, is heading for its worst maize harvest this century, according to consultancy Agritel. Hot, dry conditions are also afflicting the US Midwest.

High gas costs are curbing fertiliser production. That is exacerbating food shortages in Africa.

Wheat normally accounts for just a tenth of the price of a loaf of bread. Other spiralling costs are bigger factors behind food price rises. In April, Associated British Foods said it had recovered “huge” input price inflation with a 25p rise in the shelf price of its Kingsmill bread to £1.10. The baker warned that further post-invasion increases were on the cards.

Food price inflation normally lags behind global agricultural commodity prices by about nine months, says Capital Economics. A portion of the blame for the rise in CPI food inflation from below zero in 2021 to 12.6 per cent in July can be pinned on last year’s commodity price surge. The consultancy forecasts a further rise in food price inflation to more than 13 per cent. That would be the highest rate since at least 1989.

Global food prices will begin to drop in 2023, in the view of Morgan Stanley. The impact of the Ukraine war on energy and fertiliser prices will persist. Even so, the world should be thankful to hard-working farmers in warring Russia and Ukraine for a rare piece of good news.

The Lex team is interested in hearing more from readers. What is your take on world food supply? The situation is less dire now than some forecasters predicted. Please tell us what you think in the comments section below.