- U.S. plantings of winter wheat are at their lowest point in more than 100 years due to soggy fields, low prices and slipping demand, according to Bloomberg.
- Farmers planted 25% less soft red winter wheat in Illinois and 7% less in Michigan. The result, Bloomberg reported, could eventually be lower quantities and higher prices in the type of flour used for snacks such as crackers, biscuits, Oreos and Cheez-Its.
- For now, large CPG companies aren't seeing an impact. Tom Armitage, a spokesman for Oreo maker Mondelez, told Bloomberg the company has "a level of protection against the price inflation in wheat" and is seeing sufficient global supplies. Kellogg said the company didn't expect any impact on its ability to produce foods containing soft red winter wheat.
The wet spring weather last year made fields muddy and difficult to sow, but that isn't the only problem wheat farmers are facing. As the warmer, wetter weather continues, soggy conditions tend to enhance fungus growth right when harvesting begins in June, Bloomberg said. Fungus issues negatively impacted the 2019 wheat harvest, lowering the quality and raising prices, and that trend could continue in 2020.
While there doesn't appear to be any near-term impact, the situation could eventually become difficult for manufacturers dependent on a certain type of wheat to make their products unless they arrange in advance for deliveries of the commodity — and potentially augment the available U.S. supply with imports. According to the USDA's Wheat Outlook for January, about 70% of this season's wheat crop has been marketed.
Other major wheat-producing regions such as Australia, Canada, the European Union and Russia have seen harvests suffer due to recent drought, so they may be less likely to have wheat surpluses available to export. China probably won't be a source for additional supplies since it has been holding onto its wheat in an effort to ramp up food security and stability.
Meanwhile, corn and soy stockpiles are reportedly at their highest level in decades, so it's possible food manufacturers will take a look at shifting ingredients over to those commodities instead of using wheat. Some farmers are also planting more corn acres rather than wheat since they can get a higher price for it.
Mondelez CEO Dirk Van de Put recently told CNBC he expects prices for certain commodities to increase more this year than in previous ones, and that this will mean slightly higher prices for some of the company's brands such as Oreo. However, the inputs he mentioned related to dairy and packaging and not necessarily wheat.
Still, U.S. wheat prices seem bound to rise amid volatility in the weather. According to analysts cited by Barron's, hot and dry weather forecast for this spring, coupled with flooding to follow, could push wheat prices 40% higher in the next few weeks. The Wall Street Journal reported mid-January futures for hard red winter wheat, which is used to make breads and other baked goods, were up about one-third since September, while soft red was trading about 25% higher during the same period.
Wheat isn't the only common food ingredient being adversely affected by climate. Supplies of cane and beet sugar have been limited this year due to rainy weather, pushing prices up and potentially causing manufacturers to explore alternative sweeteners if the trend persists.
As climate change continues to influence global commodity supplies and prices, CPG manufacturers should try to diversify their ingredient list by finding ones that can be subsituted for each other and start expanding beyond the most frequently grown crops — wheat, rice, corn and soybeans — to help mitigate these problems. Planning ahead might avoid a potential supply crunch and price hikes that could increase costs and threaten profits.