Rain, Wheat and Pasta!

June 28th, 2011

"What is going to happen to all of the products produced from the lowest U.S. planting level of durum wheat in 50 years?" Today’s post is by Mark Davis; Vice President of Operations and CTO at SafeSourcing.

For weeks, North Dakota and Montana, the nation’s two largest producers of durum wheat have been pounded with heavy rain that will likely mean a drop of up to 47% of durum wheat production. 

Durum wheat, or “macaroni wheat”, is the hardest of all wheat types and that together with its high protein and gluten content make it the perfect wheat to be used in the manufacturing of pasta.

Due to the heavy rains farmers have been unable to get crops planted and even now they are out of time to plant crops in time to avoid the pre-winter frosts and will likely have a little more than half of the durum wheat production as normal, affecting prices of related products all over the world.
Durum wheat was up over 52% in May and the May U.S. pasta prices were the most expensive on record while other durum wheat producers like Canada saw prices jump 47% in May.  With fewer acres of wheat being produced the pasta prices will be affected accordingly.

Companies producing pasta products like Kraft with their Macaroni and Cheese and Campbells with products ranging from noodle-based soups to Spaghettios, have already announced increases in many of their products due to the lack of durum wheat production and subsequent higher durum wheat prices.

In product categories such as this one it is more important than ever to make sure that you are doing everything you can to keep the cost of goods controlled with tighter contracts containing index terminology and keeping the pricing you receive as competitive as possible. 

When the supply of product takes a huge decrease in relation to its demand, the opportunity for competitive pricing events becomes a little more difficult, as vendors will have plenty of places to sell their product. 

This may be a time to get more creative in other ways as far as length of contracts, other services or products you may agree to take on, or other considerations that will allow you to get competitive pricing on a high demand product category.  It is hard to predict what climatic conditions such as all of the spring rain will do  to agricultural products, but smart procurement professionals can learn to leverage other techniques in order to keep their costs for products affected by these conditions under control.

For more information on SafeSourcing and how we can assist your company with sourcing these goods and services, please contact a Customer Service Representative for more information.

We hope you have enjoyed last week’s  Five Part Series and look forward to and appreciate your comments.

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