In the wake of historic high prices, the American Bakers Association believes the U.S. should hang onto its supply of wheat, at least until wheat harvest begins and wheat stocks can be replenished.
That is not only unsound economics, it is illegal, says Alan Tracy, president of the U.S. Wheat Associates, a private- and federal-funded market development organization based in Washington D.C.
"Only under compelling circumstances, if the president declares a national emergency, would this action be authorized by the federal government," says Tracy, who spoke to agricultural journalists a few days before the annual Commodity Classic in Nashville. "Overseas customers should have the same access to our wheat as anybody else."
Tracy's comments are in response to an appeal by the American Bakers Association to USDA, asking for the agency to review its export guidelines and consider opening five to 10 million acres of ground now enrolled in the Conservation Reserve Program.
The ABA says the U.S. holds less than two weeks of wheat in storage, well below the average of 27 days.
Tracy, meanwhile, says the U.S. baking giant Sara Lee increased prices for its baked goods last fall by 5%, attributing the increase to the increased cost of flour.
"I've done some calculating and with wheat prices at $7, the total value of all the wheat in a loaf of bread was paid for by the company's price increase," says Tracy.
Furthermore, countries that import wheat from the U.S. – namely Nigeria and Japan - continue to pay the going rate for high-quality wheat.
"Japan buys only premium wheat and they'll pay these prices anyway," he says. "You'd think that in a country like Nigeria, demand would be more elastic. But there is an agreement between millers and the Nigerian government that food will be provided to its people."
Tracy says wheat prices are driven by unprecedented demand for all grains, not just wheat. For instance, the world's middle class population continues to grow at a rapid pace. As people make more money, they seek to improve their diets by eating more meat. In turn, greater quantities of corn and soybeans are needed to feed meat animals.
China's population, for example, consumed 50 kilograms of pork per person in 2007, compared to 20 kilograms per person in 1985. Each week, more than one million people are born in China – straining the world's ability to meet demand for food.
And with more acres being planted to soybeans and corn, the wheat industry must "bid" for wheat acres, resulting in prices ranging from $12 winter wheat and $23 spring wheat offers at the nation's major wheat markets.
This demand for grain poses opportunity for wheat, the most widely consumed grain in the world.
But the world is consuming more wheat than ever before. In 2007, consumers around the world ate 1.66 billion tons of wheat – 89 million metric tons more than in 2006. Markets such as Japan and Nigeria continue to buy record amounts of U.S. wheat – despite the high prices.
Mexico is the largest importer of U.S. wheat, buying 2.7 million metric tons in 2007, up from 750,000 metric tons in 1993, when the North American Free Trade Agreement was ratified.