Wheat futures are soaring. Food prices could be next

Russia’s attack on Ukraine is causing wheat prices to spike, exacerbating already high food prices.

Wheat futures were up about 5.35% Tuesday, reaching prices not seen since 2008. The higher prices make wheat more expensive for food makers, who will likely pass those costs on to consumers.

Ukraine and Russia together are responsible for about 14% of global wheat production, according to Gro Intelligence, an agricultural data analytics firm. The two countries supply about 29% of all wheat exports. Prior to the Russian invasion, Ukraine was on track for a record year of wheat exports, while Russia’s wheat exports were slowing, according to the US Department of Agriculture.

“This could not come have come in the worse time,” said Robb MacKie, president and CEO of American Bakers Association.

With wheat prices already on the rise, the conflict abroad is placing even more pressure on a still ailing supply chain. Russia is the top exporter or wheat, while Ukraine is in the top 5. The two counties compete in export markets like Egypt, Turkey, and Bangladesh.

“Depending on how this comes out and how long it goes, wheat farmers [in Ukraine] may not be able to plant spring wheat, corn and other things. So, they might go a year without any crops,” MacKie added.

That will likely push prices on US consumer items like cereal and bread higher. Cereal and baked goods were up 6.8% in the last year because of inflation, according to the US Labor Department. Consumer prices usually lag market prices of wheat, corn, grain – as these commodity prices are contracted in advance. That means the impact may not be felt for weeks or months.

Russia’s actions also have caused a major disruption to Ukrainian ports, hobbling the export market.

“You’ve got all kinds of logistical restrictions,” said Jim Heneghan, SVP of Agribusiness at Gro Intelligence. For example, “Ukrainian ports [are] closed to commercial traffic,” Heneghan said. And there also are reports of commercial ships being attacked.

The disruptions are tightening global wheat supplies, even as demand stays the same or spikes. And with less supply, prices are rising even more than they have during the pandemic.

Global food prices rose as much as 28% in 2021, according to the Food and Agriculture Organization of the United Nations. Supply chain disruptions and extreme weather contributed to the higher prices.

The current situation “is just adding to additional food price inflation that we’ve been witnessing,” Heneghan said.

US food prices are not immune

Most US consumer brands don’t rely on imported ingredients, said Katie Denis, who leads communications and research for the Consumer Brands Association, a US trade group.

“For the US market, we only import about 8% of the total stuff needed for the [consumer packaged goods] industry,” she said. “It’s pretty minimal.” Most imported items come from Mexico and Canada, she added.

Higher wheat prices are good news for US farmers, as more demand could shift to the US. Even so, although US companies may not have direct exposure to disruptions in Ukraine, they aren’t immune from them, either. “This is a global economy,” Denis said. “The pricing pressure will be something felt across the entire world.”

Gro Intellligence’s Heneghan said that as global supply tightens, US wheat farmers could export more product. “A lot of times, you’ll see the demand come back to the US … when you have global events that shut down exportable surpluses,” he said. “But it comes at a higher price.”

That could be good news for US farmers, he added, but not for consumers.

Wheat grows in a field near Uzhhorod, in the Zakarpattia region of Western Ukraine, in July 2020.

“Over the next few months, you’ll see what food companies … will have to do with the higher prices they’re having to contend with,” Heneghan said. Food and consumer goods producers may choose to absorb some of the price hikes, but they are more likely to continue to pass them onto consumers, he noted.

The producer price index, which tracks average price changes America’s producers get paid for their goods and services, rose 9.7% in the 12 months ended in January, not adjusted for seasonal swings, the Bureau of Labor Statistics reported in February.

And they’re likely to raise prices further as input costs rise, Heneghan said, especially because wheat isn’t the only crop that’s getting more expensive.

Other agricultural commodity prices are going up, such as corn and soybeans, not to mention oil. “It’s going to give [consumer goods makers] even more reason to think about moving forward with those price increases,” Heneghan said.

CNN’s Anneken Tappe and Julia Horowitz contributed to this report.