Flour prices and the unrest in Ukraine
I had to get someone to explain this to me, because even though I know a ton about bread, stock prices and commodities baffle me.
Wheat is a commodity and its price fluctuates according to supply and demand. If the market is flooded with any particular commodity the market will drive the price down to push the supply chain. In this same vein, the instance a commodity is in low supply the demand increases, so the price increases. South Africa produces its own wheat but is still governed by the market. Flour distributers store their grain at the AFGRI (a very large agricultural support and storage company) which is then sold back to the farmers for them to mill. The price at which the wheat is bought and sold is determined by the commodity price.
The unrest in Ukraine has caused the price of wheat to fluctuate because their production has been disrupted. Ukraine represents 10 percent of the global wheat production and Russia represents 20 percent. If both of these supplies are suddenly cut off there is significantly less wheat available. This sudden demand causes price increases, this affects all of us- from farmer to retailer.
Our supplier Champagne Valley have been fantastic in keeping us updated and helping us understand what all of this means to us as South African producers. Heavy rains last year have affected the crop yield and now with this sudden increase it means that wheat price has risen significantly.