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Corn and Wheat Markets Hard to Predict for Food Manufacturers
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Extraordinary weather situations and futures speculation keep prices a moving target this season for both crops, while bakers appeal for the CFTC to address ongoing volatility in the wheat market.

The World Agricultural Supply and Demand Estimates (WASDE) released in June 2010 by the U.S. Department of Agriculture predict that new demand for corn could exceed production, despite the possible record crop. At the time of this writing, the USDA still expected supply to be adequate, although Midwest flooding had threatened portions of the new crop.

In June 2010, the Food and Agricultural Policy Research Institute advised farmers to lock in higher corn futures prices and to avoid expecting a summer price rally. For food manufacturers, that may signal the opportunity to purchase corn at lower prices later in the season.

In the Wheat Fields

World wheat production is expected to be high this season, an announcement that drove down prices that had risen in response to Russia's drought-triggered ban on grain and flour exports through the end of the year. In addition, Bloomberg reports that U.S. farmers will increase their planned production of winter wheat by millions of acres.

This high supply should drive wheat prices down for food manufacturers. However, with the market dominated by speculation, small food manufacturers buying flour on the spot market may instead end up paying high prices, since larger companies locked in low purchase prices months ahead, according to The New York Times.

To address this volatility in the wheat market, the American Bakers Association (ABA) has called on the Commodity Futures Trading Commission (CFTC) to remove position limits on index funds to allow for better price discovery in the market.

"Bakers and other true commercial users are finding it increasingly difficult to use the wheat futures markets for price discovery," says ABA President and CEO Robb MacKie. "While bakers and other wheat users across the country are straining to work within an ineffective market - the index funds continue to hold or add to their positions, indifferent to the difficulties they are creating for farmers and food producers."


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