John Myers Jr., Business Reporter
Managing Director of Jamaica Flour Mills Derrick Nembhard says more hikes in flour prices likely before year end because of volatility in the wheat market. -File
The increasing demand for grains to produce ethanol continues to drive up the price of wheat on the international market and this could further push up the cost of flour and baked products locally.
Managing director of the Jamaica Flour Mills (JFM), Derrick Nembhard, said the price of flour could be increased again by year end if wheat prices continue to rise on the international market.
"Our last increase was September 1 and I am sure that we are going to be looking at another increase, certainly before the end of the year," Nembhard said.
Wheat prices have varied over the last nine months, he said, from US$5.50 to US$8 a bushel.
15 per cent average increase
"The average increase that we have is probably five per cent at a time so prices have moved an average of about 15 per cent just this year alone, (and) there is going to be an increase before the end of the year. I have already been told that," he added.
The cost of flour is one of the chief price inputs for bakers. And breads, buns and pastries are likely to get more expensive as year end approaches.
According to president of the Bakers' Association of Jamaica, Gerry Chambers, his members have already absorbed some of the increases.
"We just had a price increase in the last two weeks. First, there was a five per cent increase and we absorbed it, but then a six per cent came on afterwards but we couldn't absorb it, so the price of baked products went up in the last two weeks," he said.
Chambers, who is also the managing director of Hilton's Bakery in Montego Bay, said the price performance of flour could, if the spiral continues, move the cost of baked goods outside the reach of many households.
"The price increases are taking place on a daily basis and people's wages are shrinking," he asserted.
Calendar inflation to August is running at 7.1 per cent, which means each dollar earned buys even less goods than it did at the start of the year.
World market supplies of wheat have been lower than expected. Australia, one of the largest producers, has had disappointing yields.
Countries like Venezuela and Iran have been turning to the United States for supplies. The result is higher prices, but also volatility in the trading of futures contracts.
On Wednesday, a bushel of wheat increased to US$9.27, but fell early Thursday to US$9.21 on the Chicago Board of Trade. On Friday, the price was down further to US$8.90 in mid-afternoon trading.
Nembhard said that JFM, whose American parent, Archer Daniel Midlands Company (ADM) - one of the world's largest agricultural processors - has experienced three price increases in the wheat it buys already this year.
JFM is the island's sole flour mill.
Nembhard said much of the price volatility for wheat is also linked to the demand for corn as feedstock for fuel grade ethanol production, as farmers in the United States shift their fields from wheat to corn.
worldwide production
Wheat production worldwide is currently estimated, 2.17 billion bushels, compared to 21 billion bushels seven years ago.
"The initial movement is due to ethanol because the first thing you have is more farmers going into growing corn versus wheat," Nembhard told Sunday Business on Wednesday.
Further to this, he said, was the increasing use of the already short supply of wheat to produce animal feed, as manufacturers run short on corn.
Poor weather conditions and production results in supply markets like Australia, the United States and Brazil have created a supply gap, thereby fuelling the price increases.
But, in addition to the those factors, Nembhard indicated that investment traders have also been competing with millers for grain futures, saying the upward price trends make the commodity an attractive investment.
"Instead of having just grain traders buying wheat futures - in other words to buy wheat in the future to use as consumables - you are having fund managers going in and buying these futures not to sell to the likes of me, but to sell down the road to get capital appreciation on their money," he said.
The JFM converts 15,000 tonnes of wheat every month. Supplies are shipped from ADM's grains division in the U.S. on a monthly basis.
Nembhard said the volatility of the market and the current high demand for the commodity has made it difficult to secure enough supplies for stockpiling.
"They are buying month to month, so it's very difficult for me to know until the boat is being loaded what the price is going to be," the JFM head said.
"To say when it is going to slow down is a very difficult question to answer because there are a number of factors driving wheat prices and not all of them are wheat related."
john.myers@gleanerjm.com
Custom cutter Jeff Goebel, from Gettysburg, South Dakota, harvests wheat in a field, June 18. The U.S. Department of Agriculture said September 12 that strong worldwide demand for wheat stands to drain U.S. stockpiles to the lowest level in 33 years. - AP
