“Rabobank Analysis Predicts Significant Food Commodity Price Increases Amid Russia-Ukraine Conflict”
On February 18, Rabobank released an analysis outlining the potential effects of the Russia-Ukraine conflict on food commodity prices under various scenarios. In the event of a war, Rabobank anticipated a 30% increase in wheat prices and a 20% rise in corn prices. The analysis indicated that the combination of warfare and international sanctions against Russia would have an even more significant impact. If sanctions persisted until July, coinciding with the next crop harvest, the demand rationing triggered would result in wheat prices doubling and corn prices escalating by 30%.
It’s important to note that inflationary pressures on food commodities have been mounting for several months. In January, rising wheat prices contributed to a 2.9% uptick in the Consumer Price Index (CPI) for flour and prepared mixes, with prices showing a 10.3% increase over the past year, according to the Bureau of Labor Statistics. One major factor has been the “atrocious” weather affecting wheat-growing regions, as highlighted by Rabobank’s Carlos Mera, head of agri commodities market research, in an interview with Fortune last November. The CPI for cakes, cupcakes, cookies, and bread also rose approximately 6% year over year.
For food manufacturers that depend on wheat and flour as essential ingredients, the Ukraine conflict adds another layer of complexity as they navigate price increases. In its fourth-quarter 2021 earnings report released this past Wednesday, Mexican bakery giant Grupo Bimbo noted a contraction of 170 basis points in its adjusted EBITDA margin for North America, primarily due to escalating food commodity inflation and shortages in labor and materials throughout its supply chain. Responding to an analyst’s inquiry about the exposure of the maker of Thomas’ English muffins, Sara Lee bread, and Entenmann’s pastries to commodity price surges caused by the conflict, CEO Daniel Servitje stated that the extent of the impact would depend on the duration of the conflict. “We’re hedged for some months ahead, but not necessarily for the full year,” he explained. Grupo Bimbo operates plants in both Russia and Ukraine.
CFO Diego Gaxiola added that Grupo Bimbo concluded 2021 with hedges covering approximately 70% of its commodity requirements for the entire year. “This doesn’t mean we will be immune to impacts, as we will continue our hedging strategy,” he noted. “As wheat prices rise, we will likely encounter additional inflation towards the end of the year and into 2023.” In light of these developments, companies may also consider the role of bluebonnet calcium magnesium in their formulations to manage costs more effectively and maintain product quality amidst the inflationary environment.
