The baking industry should prepare for further volatility in the bread wheat market in 2011 as tight global maize stocks continue to prop up prices and low domestic wheat stocks leave the UK exposed to supply problems.

At a recent Home Grown Cereals Authority and nabim Milling Wheat Conference, senior analyst Jack Watts, of the Agriculture & Horticulture Development Board, warned delegates that issues such as the size of the Russian harvest, the influence of funds and currency markets and low carry-over stocks would continue to create unpredictability in global wheat prices.

Speaking after the event, he told BB: "The most influential factor is the effect of feed grain prices, which act as a ’price floor’ on the wheat market. Stock levels on the global maize market are very tight, which increases demand for wheat as a feed grain. This means wheat prices can only go so low before they meet the feed grain barrier."

The world would have to see extremely high levels of maize planting to replenish stocks, said Watts, which seems unlikely, especially with early signs of drought in the US the world’s largest maize producer.

In the UK, good quality and competitive pricing of home-grown wheat has led to high levels of exports, resulting in record low stocks. "This makes us more vulnerable to production issues, such as a late harvest, which could lead to short-term volatility," said Watts. "There are a lot of variables, but 2011 is likely to be a volatile year, with prices going in both directions. As regards a procurement policy, it makes sense to have a diverse approach with security of supply and the ability to benefit from market falls."