A Graph Would Do Nicely – for Sep. 9, 2010

Some of us in business can communicate directly with the final consumer of our product. Farmers usually aren’t so fortunate. For example, wheat goes to a grain company, then to a mill and finally to a bakery. The baker, rather than the farmer, gets to take the credit for that nice tasty loaf of bread. But when the price of the loaf goes up, it seems the farmer gets the blame.

In recent weeks, the Russian drought and higher wheat prices have caught the attention of the national media. On Aug. 13, with nearby Chicago wheat futures at $7.34 (at time of writing last week they had retreated to $6.52), theGlobe and Mailran a piece titled “How higher wheat prices affect Canadians.” The writer did quote a farmer noting that at current prices, there was still less than 15 cents’ worth of wheat in a loaf of bread, but too bad he didn’t use that to do some math later on.

A Calgary baker quoted in the article said that his price of a 20-kg bag of white flour had recently risen from $11.20 to $12.89, or about 15 per cent. Given that there’s about a bushel of wheat (27 kg at 70 per cent extraction) in that bag of flour, a 15 per cent increase might be reasonable given the increase in wheat prices.

But the article then went on to say that the baker’s ingredients, which it said were “mostly flour,” had risen to between 75 cents and $1.98 per loaf.

You can make 42 of the largest 24-ounce loaves of white bread from a bushel of wheat. At $7.50 per bushel, that’s 18 cents per loaf. Since there’s no extraction of bran and germ from whole wheat flour, that brings the figure to about 60 loaves per bushel. That’s 12.5 cents per loaf – and the whole wheat bread probably sells at a premium.

The baker quoted in the story is selling bread for between $4 and $5.50 per loaf.

A week later, theGlobe and Mailran “A new world order in food,” an opinion piece by Sylvain Charlebois of the University of Guelph. The theme was that the current price spike is a sign of more to come, and that a growing world population with a bigger appetite for meat would strain supplies and drive up prices.

Maybe, but we heard the same theme in 1974, 1980, 1996, 2007 and now again in 2010. It would be nice if it were to hold true this time, but don’t bet the farm.

However, what seemed a bit over the top was the assertion that higher food prices might be a good thing because “…nutrition may also improve as a result of these increases. Salt, sugar, fast foods – consumers are eating too much of too many nutritional evils.”

He presumably means that if food prices go up, we’ll eat less. If there’s only 12 cents’ worth of wheat in a healthy loaf of whole grain bread, then how much is in a bag of Twinkies or chocolate chip cookies? How much would grain prices have to increase before consumers might be discouraged from buying them?

While there may be some relationship between the price of grain and the price of meat, in most other cases there is virtually none. There’s less than two cents’ worth of wheat in a sandwich. If the wheat price doubled, would that reduce sandwich consumption?

Back in 1980 and until the Canada-U. S. Trade Agreement in 1988, there was a two-price wheat system in Canada. For export, farmers received current market prices. For domestic sales – about six per cent of the total – they received $7 per bushel, or about the same as today. What’s happened to bread prices in 30 years?

Assuming these “high” prices continue, the country’s farm groups should consider getting together to fund a modest national advertising campaign pointing out some of these statistics. A graph with the price of wheat versus the price of bread for the past 30 years would do nicely.

If Farming Is A Business…

There probably aren’t many farmers who would disagree with the opinions above. Then why do so many welcome news that would drive down the price even further?

For example, last week there was universal enthusiasm about a story that the wheat genome had been decoded. It was later reported that researchers who made the claim had jumped the gun and that much more work needed to be done. But that wasn’t before farm and industry groups, especially in the U. S., welcomed the news that this would help grow more food for a hungry world.

If accurate, the news would certainly be good in that context. But in a market where wheat production has been on a steady uptrend with current technology, leading to almost perpetually low prices, why is it good news if new technology will make the price-depressing surplus (real or perceived) even larger?

It’s often said of farming today that it’s a “business.” If so, then such news should be greeted with a businesslike response. In business, customers who want long-term supply sign a contract with price guarantees. Maybe the “world” needs more wheat, but until the “world” can make a deal, those who represent farmers should be cautious about signing them up for a one-sided contract. [email protected]






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