As the 2023-24 US wheat marketing year approaches, there are concerns over a lack of moisture, which could limit yields and production of two of the three largest wheat varieties grown in the US, increasing the risk of above-average flour prices into 2024. The hard red winter and hard red spring wheat classes are facing challenges due to a severe lack of moisture, which could potentially limit yields and production in 2023.
Last fall, the winter wheat crop in the central and southern plains of the US was mostly seeded in drought. According to the US Department of Agriculture’s (USDA) national seeding scorecard released on November 14, 2022, the plains from the Canadian border to the southern tip of Texas were almost entirely in drought conditions.
Although winter dormancy was mild and mostly uneventful, as wheat awoke from winter dormancy, more acres were found to be growing in drought and crop conditions mostly worsened. This led some growers in southwestern Kansas and the panhandles of Texas and Oklahoma to consider scrapping their crops.
Why Droughts Impact Flour Production
Droughts can have a significant impact on flour prices and production for several reasons. Droughts can lead to lower crop yields, including those of wheat, which is a primary ingredient in flour production. When there is less wheat available due to drought, the supply of flour decreases, and as a result, the price of flour may increase.
Droughts can also affect the quality of wheat crops. When crops are stressed due to a lack of water, they may not mature properly, which can lead to lower-quality wheat. This lower-quality wheat is not as suitable for flour production, hence flour producers may have to pay more to obtain high-quality wheat, which can also lead to higher flour prices.
Additionally, droughts can affect the transportation of wheat and flour. Drought conditions can make it more difficult to transport goods by water, as water levels may be too low for ships to navigate. This can increase the cost of transportation, which can also contribute to higher flour prices.
Lastly, droughts can affect the overall demand for flour. During droughts, people may cut back on their consumption of flour-based products, such as bread, due to higher prices or shortages. This decrease in demand can put downward pressure on flour prices in the short term, but if the drought persists, the reduced supply of flour may eventually outweigh the lower demand, leading to higher prices in the long term.
Rising Flour Prices
The drought conditions have put a lot of attention on crop abandonment rates, as many acres are not being harvested. Crop insurance adjusters are overwhelmed with calls and putting the decision back on the farmers of whether or not they will take insurance on those fields, zero it out or not take it to harvest.
The USDA’s measurement of winter wheat in drought has improved week by week in early 2023, primarily due to the soft wheat growing in the central states of Missouri, Illinois, Indiana and Ohio. By April 11, nearly all major soft red winter wheat areas were drought-free, with Eastern Michigan being the only area to remain in drought conditions.
However, in the west, the April 11 Drought Monitor map shows the most intense rating of exceptional drought, with 95 percent of the winter wheat area in drought in Kansas, 71 percent in Texas, 88 percent in Colorado and 80 percent in Oklahoma. As a result, the shortage of moisture could result in elevated flour prices into 2024, which is a concern for many within the industry.
There have been several notable spikes in flour prices over the past 20 years. For example, in 2007, flour prices increased by more than 50 percent due to a combination of droughts in wheat-growing regions and rising demand for wheat-based products. In 2012, a severe drought in the Midwest caused the price of wheat to soar, which in turn led to higher prices of flour and other wheat-based products.
In general, the price of flour has steadily increased over the past two decades. According to data from the Bureau of Labor Statistics, the average price of flour in the US in 2003 was around $0.22 per pound. By 2020, that average price had increased to approximately $0.42 per pound. Now, the price of flour sits at around $0.55 per pound.