Why do Flour Prices Fluctuate Daily?
You don’t necessarily have to be a licensed stockbroker to understand flour prices, but it wouldn’t hurt. Fluctuations on flour pricing are intricate, but can be simplified for a general understanding. Three main variables—all of which are volatile—influence the price of flour every single day.
- Wheat future prices. Traded on the Chicago Board of Trade (CBOT) and NYSE Euronext wheat-future exchanges, a buyer agrees to take a specific quantity of wheat on a future delivery date at a pre-determined price. Wheat futures are standardized contracts, and the seller is then bound to deliver the quantity purchased on the date specified.
On the CBOT exchange, prices are per bushel and traded in lots of 5,000 bushels.
- Cash basis. It’s not quite as simple as exchanging a contract and fulfilling it. The actual cost of delivering wheat to the mill is incorporated, as well as the grade and quality of wheat the miller requires. When combined with the wheat-future price, we get an actual cost of supplying wheat to the mill.
- Millfeed. One more component that influences wheat prices results in a credit for the mill, ultimately reducing the price of flour to customers. Not quite 80 percent of the wheat kernel can become flour, so flour mills are left with a byproduct called millfeed (or millrun). The byproduct price mills receive is treated as a credit, which means customers see lower prices on flour.
With fluctuating exchange prices, ever-changing delivery prices and variable millfeed quantities, it’s easy to see why the price of flour changes daily.
Generally, the price of flour stays fairly steady, increasing and decreasing moderately over time. However, just like the stock market, large jumps in either direction are possible, and both sellers and buyers need to take all these factors into account when making transactions.
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