The price of wheat advanced more than US$ 30 this Monday to a historical record of US$ 475 per ton in the reference market of Chicago for the delivery contract in May. Just like oil and other raw materials, the price of cereal took flight in the last three weeks after the invasion of Russia in Ukraine. The appreciation of wheat is already generating concern and impact on Uruguayan merchants. The Bakery Industrial Center of Uruguay expects two rises of the flour in the course of this monthbasic input for the production of bread and other derivatives.
Precisely this Monday Livestock Minister Fernando Mattos and his team were analyzing together with the president of the Republic Luis Lacalle Pou the distortion that can be generated by the rise in wheat in Uruguay due to the conflict between Russia and Ukraine, as well as the availability of fertilizers. The government intends to create a work team with the Foreign Ministry and the Ministry of Economy to mitigate the impact that a strong rise in this cereal can cause. Mattos said at a press conference that he was looking for a way to find “new suppliers” of fertilizers as a “first step” to supply the Russian market.
On the other hand, the Minister of Livestock commented that the strong rises in the future contracts of some grains, such as wheator, “unfortunately” it is going to be transferred to baked goods in Uruguay as in vegetable oils. In addition, he added that it also generates a “indirect consequence” in the production costs of the most grain-intensive meats such as poultry and pork.
“We are going to have some instances with ministers from the region to analyze this problem. We have come to warn the president (Lacalle Pou) of this reality and of the distortion that this conflict generates in Europe, and that it will have consequences regarding what is formation of food prices for a few months,” acknowledged Mattos.
After a year of moderate growth—generally not exceeding US$300 per ton—lInternational wheat values soared in the second half of February. The Rosario Stock Exchange, which specializes in monitoring commodities linked to agriculture, indicated on Monday that the “Russian-Ukrainian crisis and its warlike outcome continue, which results in the extension of the closure of exports from ports ” from Ukraine. In addition, he reported that Iraq opened a new to tend (called) to buy 1 million tons of wheat to create “a strategic grain reserve in view of global uncertainty, in line with many wheat importers from the Black Sea region, further propping up prices.”
Grain supplies to countries such as Egypt, Algeria, the Middle East and even Africa, which are increasingly dependent on Russian and Ukrainian wheat“it can be a problem if ships carrying wheat from the Black Sea,” warned French economist Philippe Chotteau.
Ukraine is responsible for about 12% of world wheat exports and Russia for another 16%. Russia is the world’s largest exporter and Ukraine the third. behind the US.
On the other hand, according to the specialized cabinet Agritel, “the sunflower oil is the one in most danger.” Famous for its endless fields of sunflowers, Ukraine is the world’s largest producer of this oilseed and the largest exporter of its oil. “The situation is very tense in the world oil market. There are few stocks of soybean oil in Latin America and palm oil in Indonesia and Malaysia, while demand is very strong,” analyzed Sébastien Poncelet, an expert at Agritel .
Impact in Uruguay
The Mercantile Chamber of Products of the Country left nominal (without price) the price of wheat destined for baking in the week that closed on March 4. The previous reference was from February 25 with a value of US$ 280/290 for the ton of this type of cereal. However, heBakers are already clear that the price of one of their key raw materials will have upward adjustments in the coming weeks. A mill consulted by The Observer He said that a rise in the price of flour was “imminent”, taking into account what is happening with the price of wheat in the international market.
“Unfortunately for the local consumer, the price of wheat has been rising for a long time and is at very high values,” he told The Observer Gustavo Mancebo, manager of the Bakery Industrial Center of Uruguay. And the war did nothing but exacerbate this upward trend, taking into account that Russia and Ukraine are two very relevant players in the global production of this commodity. “This will be transferred to the price of flour and there will be no other alternative than to reflect it in baked goods,” he explained.
The executive stated that It is not yet certain how much the increase will be that the mills will transfer in their price lists for the different types of flour that they sell in the local market. In any case, Mancebo indicated that in the previous contacts that were held in the last few hours with the millers, it was already confirmed that there will be a rise in the price of flour. “Today we still don’t have an exact percentage,” he specified.
The Uruguayan mills made a 20% flour adjustment last December, something that was not fully reflected in the months of January and February in the prices of baked goods from bakeries, supermarkets and shops for the final consumer.
However, now the perspective is that “it will not be possible to bear” the price to the public so as not to affect sales because the international market trend is upward, Mancebo explained. “We know that in March there will be two increases (in the price of flour),” reported the manager of the Bakery Industrial Center. He added that the first increase in flour would take place next week and then there would be another, in the course of the month, to “divide” and “not transfer” all the correction that the international market showed in recent weeks on the domestic market at once. Bakers have their cost structure with a flour today on an axis of US$300 per ton of wheat, when the cereal is already trading close to US$500.
Piqsels
The Russian invasion generates tensions in the supply of this cereal in several countries.
A mill source told The Observer that all the variables on the table are being analyzed, and that the current situation of war in Ukraine leads to being “cautious” before transferring 100% of what the photo of the international wheat market is showing today. “A way will be sought to mitigate this conflict as much as possible in local demand,” he said.
The product most sensitive to the increase in flour is common bread (flute, porteño, Marseilles, hot dog bread, turtles). On the other hand, in other types of baked goods —which have other ingredients (in addition to flour)—, the impact is less. The weight of flour in the cost structure in artisanal bakeries is lower than in industrial bakeries. In the first case, this is due to other components that weigh more, such as labor, rent or energy (firewood or electricity), explained Mancebo.
Strong dynamism of exports
In February, Uruguay’s wheat exports totaled US$54 million and grew 158% compared to the same month last year. Uruguayan agriculture closed one of its best winter campaigns in 2021. With a remaining export of some 500 thousand tons, foreign exchange earnings from the export of this cereal from Uruguay could exceed US$ 200 million this year if the strength of the market international is sustained in the coming months.
The area planted with this cereal increased by 9%, to 245 thousand hectares (ha), compared to 224 thousand ha in the previous harvest. While, total wheat production was estimated at 974 thousand tons, 4% higher than in the previous year and 121% more when compared to the campaign five years ago. The internal consumption of cereal in Uruguay is about 400 thousand tons per year, the rest is exported.
