The food industry is on red alert again over wheat - and this time it's wheat used in food, rather than feed, that's most at risk.
This spring's dry weather is threatening wheat crops in Europe's key growing regions, with some growers in the east of the UK reporting yields down 25% on 2010.
On the Continent, French wheat is forecast to be down 11.5% year-on-year, with German output down 7.2% [Agritel]. Planting has been delayed in the US, with Canada also suffering from bad weather.
Crucially, the dry spell has the potential to reduce quality as well as overall yields, meaning wheat meant for food production could end up good enough only for use as feed. As a result, food companies and bread makers in particular should brace themselves for further price hikes, experts warned.
"Bread prices will continue to go up because high-protein wheat prices will continue to rally," said Tom Vosa, European head of market economics at Clydesdale Bank. "Stocks are low and weather patterns globally have been incredibly unhelpful. Even in America, which was supposed to be the big saviour this year, stocks have been revised down."
One major UK food manufacturer said the next few weeks would be critical. "If there is virtually no rainfall in the next month, you can expect a price impact to come through," he said. "If there is some rain, the impact may be limited."
Duncan Rawson at EFFP agreed food companies should be "pretty concerned" about the drought. "There are big concerns about shortages worldwide, so if the UK crop suffers as a result of the drought, companies can't easily import wheat from elsewhere," he said.
Spring droughts are not unusual in Europe, but this year's are especially problematic as wheat prices were already sky-high and global stocks down following the droughts in Russia and Ukraine last year.
"Everyone is anxious to see a good harvest to avoid another price spike," said Ignacio Pérez Domínguez at the OECD. Prices had been recovering more slowly than expected from last year's price shocks even before the new scare. "A few months ago, prices were expected to fall below $300 a tonne for wheat by the summer, but now wheat prices are expected to continue to be around $300 or higher over the summer."
Even if food-grade wheat steals the limelight this summer, feed wheat isn't off the hook. BOCM Pauls, the UK's biggest animal feed supplier, said feed wheat prices had risen by 10% over the past few days as the market became jittery about the lack of rain, and farmers now faced further price increases in August and September, it predicted.
Editor's Comment: Can anyone stop Wall Street adversely influencing the price of food? (7 May 2011)
Growers warn of damage to crops if May stays dry (7 May 2011)