Wheat prices soar: How will that affect the grocery bill?
Wheat prices have jumped about 75 percent since early July. Drought in Russia and, perhaps, speculators in the commodity markets are behind the increase.
A loaf of bread could soon cost more money out of your pocket if the price of wheat continues its recent spike upward.Skip to next paragraph
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Since early July, the price of wheat, used to make flour, has jumped about 75 percent. On Thursday, the price on the Chicago Board of Trade, a futures market, rose more than 12 percent from Wednesday, closing at $8.15 per bushel, the highest level in two years.
If the price hike holds, the consequences could potentially be felt worldwide. Poor people around the globe – and the organizations that help them – will have a more difficult time affording basic food such as bread. Eventually, the price of food made from wheat in the US could start to rise, although the wheat in a loaf of bread is less than one-quarter of that loaf's cost. It might also mean that US farmers, with the likelihood of a good harvest this year, could take advantage of the high prices to pay off debt and make money.
“This run-up has caught everyone in the marketplace by surprise,” says Bill Lapp, an economist and founder of Advanced Economic Solutions in Omaha, Neb. “We don’t know how large the crop will be in Russia, the Ukraine, or Kazakhstan, and until we have an idea, we will have extreme volatility and the potential for higher prices.”
In some ways, the price run-up is reminiscent of February 2008, when the price of some grades of wheat shot up 90 percent, peaking at $24 a bushel. Back then, the price rose partly because of drought conditions in Kansas and Oklahoma and partly because of a poor harvest in other parts of the world. It did not help that the US dollar was weak, making US grains relatively cheap on the world market.
This time, however, some wheat users see another reason for the rise: speculators in the commodity markets. According to Robb MacKie, president and CEO of the American Bakers Association, commodity index funds have entered the futures markets, buying up 400 percent of the available supplies of wheat. Commodity index funds purchase a large basket of commodities, perhaps to hedge against inflation or for other reasons.