Cover Story
In Haiti, a boy shows his tongue after eating a mud cookie.

Feed My people

For Christian relief groups, the job of feeding the world's poor just got harder. Understanding what sparked the food price spike is crucial to surviving and providing in the current market crisis

Issue: "Food fight," May 3, 2008

A dramatic thing happened at the corner of 4th Street and 4th Avenue South in Minneapolis in February. Inside the cavernous Arts and Crafts trading room of the oldest grain exchange in the world, hard red spring wheat hit its highest price in history. For an unprecedented five straight days at the 10-story building that has housed the grain exchange since 1907, the wheat price rose the maximum allowed each day.

In the grain pit, where "open outcry" trading accounts for the bulk of transactions-over 35 years after NASDAQ introduced electronic trading-wheat traders buy and sell futures contracts on behalf of farmers, elevator operators, and food processors like Archer Daniels Midland. Hard red spring wheat at 15 percent has the highest protein content of any wheat and is sought after for breads, muffins, bagels, pizza crust, and other flour products the world over.

Minneapolis is the principal exchange for hard red, handling up to a million bushels in trades a day. During the last week of February the commodity traded as high as $25 a bushel. Normally it trades at $3 to $7 a bushel.

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But no one is remembering normal these days. From the pizzerias of Brooklyn to the street vendors of Cairo and the schoolrooms of south Sudan, February's record prices in wheat and subsequent high prices of other commodities are still reverberating outward, provoking everything from localized customer revolts to outright street clashes like those in Haiti last month.

"It was the perfect storm," said Rita Maloney, manager of marketing, communications, and media relations for the Minneapolis exchange. "A lot of factors came together-it's not as easy as saying it was ethanol production or weather issues or such."

Minneapolis pit traders conditioned to the rough-and-tumble of face-to-face trading, the stomping of the hardwood floors, the shouting and flailing hands and the occasional cursing, were not accustomed to the run-up: Some traders took in six figures a day during the February spike in wheat. And while record-high prices have fallen off-wheat delivered in March fell to $20 a bushel, still up from about $5 a bushel a year ago-the exchange has had "week after week" of historically high trading volume, Maloney told WORLD. The number of wheat contracts traded at the exchange is up 29 percent compared to 2007.

But for consumers the high prices are a bitter pill. New Yorkers complain that pizza prices have increased $.50-$1.00 per slice. Domenico DeMarco, owner of Di Fara Pizza in Brooklyn, where pizza sold for 20 cents a slice when he opened in 1964, is unapologetic about raising the price of one of his slices from $3 to $4 a few months ago. The rising cost of fresh ingredients, including flour, forced him to, he told the Associated Press.

In Boston, where chain bakery Au Bon Pain is headquartered, senior vice president of marketing Ed Frechette called the price increases "dramatic." With locations in 18 states and the District of Columbia and overseas, Frechette told WORLD: "We tend to buy long-term contracts for our wheat so we have not been hit quite as hard on our items as some other companies. We have taken the price up on a few of our baked items and sandwiches but we are trying not to pass on the costs to our guests if possible."

What's behind the suborbital prices? One thing is the age-old maxim of supply and demand: U.S. wheat supplies are at a 60-year low, according to the U.S. agriculture department, with global stocks at a 30-year low.

The reasons behind the shortage are varied: In the United States more farmers are putting their acreage into corn production for ethanol; drought and other weather-related issues in the United States and abroad have been a factor, as have political upheaval in former breadbaskets like Zimbabwe, and trade restrictions in high-producing states like Ukraine and Kazakhstan. What that means is that the United States may actually import wheat from Canada this year to meet its own demands. And that in turn siphons off the stockpile for purchasers with growing demand, like China and India.

"We are in uncharted territory," said London trader James Bower. "The market is desperately trying to tell global producers that we need more acres for wheat production."

Analysts hope that upcoming harvests in India, Mexico, and Turkey will relieve wheat shortages. But wheat is not the only commodity on an upward trajectory. Rice, a staple food for nearly half the world's population, rose dramatically in April: The price per metric ton of Thai medium-quality rice, the global benchmark, rose from $760 to $880 in one week. According to the World Bank, global food prices have increased by 83 percent in the last three years.


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