A Feb. 18 analysis by Rabobank sketched out the impact on food commodity prices based on different scenarios for the Russia-Ukraine conflict. In the case of a war, Rabobank projected a 30% jump in wheat prices and 20% increase in corn prices. The combination of war and international sanctions against Russia would be even more impactful, the analysis found. If sanctions remained until July, when the next crop harvest begins, they would trigger demand rationing, which would force a doubling in wheat prices and a 30% increase in corn prices.
That said, inflationary pressures around food commodities have been rising for months. Higher wheat prices helped drive a 2.9% increase in the Consumer Price Index for flour and prepared mixes in January, according to data from the Bureau of Labor Statistics. Prices were up 10.3% over the previous 12 months. One major driver has been "atrocious" weather in wheat-growing areas in recent months, Rabobank's Carlos Mera, head of agri commodities market research, told Fortune this past November. The CPI for cakes, cupcakes and cookies as well as bread had risen about 6% year over year.
For food manufacturers that rely on wheat and flour as key ingredients, the Ukraine conflict is yet another element for them to weigh as they attempt to control price increases. In its fourth-quarter 2021 earnings this past Wednesday, Mexican bakery giant Grupo Bimbo noted that its adjusted EBITDA margin for the North American region of its business has contracted by 170 basis points, mainly due to growing food commodity inflation, as well as labor and material shortages across its supply chain.
In response to an analyst's question about how exposed the maker of Thomas' English muffins, Sara Lee bread and Entenmann's pastries would be to higher commodity prices triggered by a conflict between Russia and Ukraine, CEO Daniel Servitje said the impact would depend on how long it lasts.
"We're hedged for some months ahead, but not necessarily for the full year," he said. Grupo Bimbo also has a plant in both countries.
CFO Diego Gaxiola added that Grupo Bimbo ended 2021 with hedges covering about 70% of its commodity needs for the full year. "Now this doesn't mean that we will not see any impact, because at the end we will continue to do the hedging strategy," he said. "And as wheat goes up, we will start to face inflation, probably more an additional inflation, towards the end of the year and 2023."
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CEOs are optimistic, but looking at potential changes in consumer behavior and buying power as they lay the groundwork for an uncertain future.
Investors still want to put funds toward well-established players in the sector, and M&A, partnerships and joint ventures will continue to proliferate, said panelists at the Future Food-Tech Alternative Proteins conference this week.
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Topics covered: manufacturing, packaging, new products, R&D, and much more.
CEOs are optimistic, but looking at potential changes in consumer behavior and buying power as they lay the groundwork for an uncertain future.
Investors still want to put funds toward well-established players in the sector, and M&A, partnerships and joint ventures will continue to proliferate, said panelists at the Future Food-Tech Alternative Proteins conference this week.
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