Bread Price To Spike As Russia Bans Exports Of Key Grains

A bread and wheaten flour price hike in South Africa is looming in the next three months after Russia, facing its worst drought in 130 years, announced a wheat export ban from August 15.

Late last week wheat prices rallied to their highest level in nearly two years and capped their biggest weekly advance in half a century due to worries that other wheat producers may follow in Russia’s footsteps, hurting supplies and driving prices higher.

Pioneer Foods managing director André Hanekom said the run-up in wheat prices would mean an increase in input costs that would push up prices for flour and bread.

“It is very difficult to say by how much the prices will go up. But there is lag of between two and three months between the price of wheat and the products. We will be under pressure but we will try to (keep) the prices as low as we can,” he said.

US wheat for December delivery rose as much as 6.5 percent to $8.68 a bushel (R2 298 a ton) on the Chicago Board of Trade on Friday, taking gains to 25 percent for the week.

On the SA Futures Exchange, December wheat jumped 2.4 percent to close at R2 766 a ton on Friday.

The price moves followed an order by Prime Minister Vladimir Putin to halt exports of wheat, maslin, barley, rye, maize and flour from August 15. This threatens to push wheat prices to $10 a bushel, a level last hit in March 2008 during the global food crisis.

In US wheat markets a bushel is equal to 60 pounds or 27.22kg.

The wheat price spike comes just as wheat farmers were cutting back production due to falling prices. But even with the resurgent prices, local farmers are unlikely to see a meaningful windfall because it is too late to plant new crops.

“It will have no consequence,” GrainSA chief executive Kobus Laubscher said. “At least if we had this news two months ago, it would have been a different story altogether.”

He said for the first time in 100 years South Africa would have to import more than half of its wheat, or about 52 percent, to meet local demand.

“This is bad news because import dependence means taking money out of the farmer’s pocket. This will have an impact on rural development because the farmer would have employed a sizeable number of employees for production purposes,” Laubscher said.

The Russian ban could benefit rival producers such as the US, Australia and Argentina. South Africa imports mainly from Germany.

National Chamber of Milling executive director Jannie de Villiers said other suppliers were likely to take advantage and raise prices. “From the consumer perspective we should expect the impact in the next three months because the wheat that is currently being discharged was bought in the last two months,” he said.

De Villiers said higher prices were likely to persist because the drought meant the Russians would likely miss planting for the next season. By Lucky Biyase, Business Report