Why Flour Prices are Up

In the wake of the dramatic runup in flour prices over the past month, several purchasing executives who attended Sosland Publishing's 2017 Purchasing Seminar offered their perspectives (not for attribution) on the flour market a month after the annual event.

“We’re working more closely with the millers, especially on the hard winter side, in terms of what it means for our blends to offset the lower protein,” one baker said.

Flour prices are sharply higher since the seminar. As of July 12, the price for hard winter-spring blends and spring standard has jumped more than 25%.

While concerned about the low protein content of the 2017 hard winter crop and the deteriorating condition of the spring wheat crop, the baker voiced optimism over larger pockets of protein that have materialized in parts of Kansas.

While disappointed by the continued deterioration of the 2017 spring wheat crop and the surging (and highly volatile) prices that have resulted, the baker said the most recent bake test results shared by millers have been encouraging.

“Some millers have been more resilient in terms of what they are able to use,” the baker said. “We may not need to use as much spring wheat as we thought.”

Beyond considerations of how hard winter wheat and spring wheat may be blended in the new crop year, the addition of vital wheat gluten may be more widely under consideration. The baker said the company was currently testing the use of vital wheat gluten at higher levels.

“We’re thinking about it for 2018,” he said. “To some degree it will help to bring up the protein.  It gives the flour a little more strength. The irony is that while winter wheat protein is a tad lower, it actually bakes quite well. I thought it was going to be worse. I’m not sure we are going to need much more gluten.”

Asked about the prospective use of vital wheat gluten in the year ahead, Dave Green, executive vice-president of the Wheat Quality Council, said flour likely will be supplemented in some percentage in the year ahead. Exactly how much is difficult to predict.

“What I’ve found is that gluten has a supply/demand market of its own,” he said. “Sometimes there is a lot of gluten around and sometimes there isn’t. The logic behind gluten is that it is 75% protein. If you add 1%, it raises your flour protein by about 0.7%. So, to get to 11.7% protein when you start with 11% flour, they find adding 1% vital wheat gluten will get them where they need. Some people find that’s a cheaper alternative to chasing spring wheat.”

A Canadian baker was upbeat about wheat prospects there.

“Manitoba looks good — a really good looking crop,” he said. “Once you get past South Alberta, up north, areas that were planted look good.”

While many flour buyers face difficult purchasing decisions ahead, specialty bakers that use large amounts of spring wheat interviewed for this story were well covered.

“We booked out pretty well a couple months ago,” a hearth bread baker said. “Then more recently we covered the first half of next year. With what’s happened, we’re very relieved.”

A second specialty baker said extensive spring wheat coverage was taken in the days following the seminar.

“We left understanding we were near record lows, and there was a pervading sense we needed to address price risks sooner rather than later,” he said. “We were working with a risk management company, and we were actually trading notes during the seminar. Afterward, we took different options to the company leadership team.”

In the days that followed, worsening drought triggered a surge in Minneapolis wheat prices.

“We operated with a compressed timeline and executed as quickly as possible,” he said. “We already were well covered, but now we’re hedged well into 2018. We’ve been told we’re ahead of the curve in terms of getting coverage.”

Mr. Green, whose career in the wheat and milling industry dates back more than 35 years, said the spring wheat problems should not have been a great surprise.

“It’s only been the last 8 to 10 years that we’ve had great yields year after year,” he said. “This is how Kansas and North Dakota are in lots of years.”

He said spring wheat problems have been centered in Montana and western North Dakota, especially southwestern North Dakota.

“South central North Dakota is getting steadily worse, too,” he said. “But there is good quality wheat in Minnesota and eastern North Dakota.”