Analyst Insight: Are bread prices set to rise?

Thursday, 9 December 2021

Market commentary

  • May-22 UK feed wheat futures closed yesterday at £229.00/t, down £1.50/t. New-crop (Nov-22) closed yesterday up £0.50/t, at £205.50/t.
  • Paris rapeseed futures (May-22) rebound a further €5.75/t (0.87%) to close yesterday at €663.50/t. This follows movement in Chicago soyabean futures (May-22), which gained 0.83% ($3.86/t) from Tuesday to close at $468.80/t.
  • The market awaits the release of the USDA world agricultural supply and demand estimates (WASDE) report tonight.

Are bread prices set to rise?

There has been a lot of headlines recently about bread prices increasing. This comes as bread wheat prices soar, and some link the two together. Whilst it is true that bread wheat prices have increased quite significantly since the start of the season (July), it is not necessarily a cause for an uplift in bread prices on the supermarket shelf.

Bread wheat prices of late

Within AHDB’s Corn Returns survey we have seen the average UK price for ex-farm bread wheat reach new levels. Last week (02 Dec), the average reached £276.00/t (December delivery). This is a price never seen before, since at least January 1990 when weekly electronic records begin. Whilst still significant at £49.50/t, the premium of bread wheat over feed wheat ranks only thirteenth largest on electronic records. This demonstrates that the rising price of domestic feed wheat has helped bolster the bread wheat price, as well as a perceived shortness in the market for full-spec bread wheat.

Tight global supplies have continued to support wheat prices lately. Recent news of poor weather in Australia potentially hampering their harvest has added to this, particularly for high quality wheat. Markets await tonight’s USDA world agricultural supply and demand estimates (WASDE) for further direction, but bread wheat prices will likely remain elevated on the back of global concerns.

Will bread prices rise on the back of this?

It may seem logical that when bread wheat prices rise, bread prices follow suit. However, this is not strictly true. There are many other factors within the cost of a loaf of bread, including bakery production processes, other ingredients, packaging, marketing, and transportation. This means that wheat prices aren’t directly related to the price of bread and will not proportionately drive the price up. We estimate that the value of wheat in a standard 800g loaf of white bread, based on the last four marketing years, is 11-15%.

We can see from the graph below that the price of full-spec bread wheat over a 12-week period can be quite volatile. However, the price of bread is much more stable.

Graph showing quarterly variation between bread prices and bread wheat prices

Throughout the timeframe 12-weeks ending 11 October 2015 to the 12-weeks ending 31 October 2021, the average bread price has ranged from £1.31/kg to £1.46/kg. This is a price variation of 11% from low to high. However, in that same period, the average ex-farm price of full-spec bread wheat has ranged from £110.36/t to £221.56/t. A variation of 101%. So, whilst we may have seen a 25% increase in ex-farm bread wheat prices since the start of the calendar year, we may not see this in bread prices.

As previously mentioned, there are a multitude of other components within the cost of a loaf of bread. Also, supermarkets push to try and keep prices relatively consistent for consumers, particularly for staples such as bread.

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