I used to follow the futures markets pretty religiously, but I haven't paid quite as much attention to wheat in recent months -- so I've mostly missed the price spike this year. Now that I've gotten back up to speed, let's examine what more costly wheat might mean.
Wheat prices approached a 10-year high this May, as a poor winter harvest and uncooperative spring weather hurt yields. It didn't help that Australia is facing a drought in some regions, nor that the carryover stocks from last year weren't all that high to begin with. In fact, parts of Australia could see a double-digit decline in harvested tonnage from last year, while the U.S. government estimated that the winter wheat harvest was down about 16% from last year.
Now, if you're a Kansas wheat farmer, you probably care a lot. Other Fools, though, might be thinking something along the lines of "yeah . and?"
Well, here's what could happen in one Fool's opinion. If wheat prices stay high, flour will get more expensive. That should be bad for just about any company that makes breads, cookies, crackers, and other wheat-containing products -- including major food companies like Kraft
Who benefits? Well, there isn't exactly an abundance of publicly traded wheat companies. Argentina's Cresud
Contrary to the headline of this article, wheat really isn't going to be "the new oil." What has happened here is pretty common for agricultural commodities. Some years see adverse weather, low yields, and high prices; other years see great weather, bumper crops, and low prices. It's a good reminder, though, for Fools who occasionally forget that Mother Nature can throw a monkey wrench into even the most carefully crafted earnings models.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).