Global commodity prices for key bakery ingredients – including wheat, sugar and eggs – are expected to be impacted by reduced harvests and tighter supply, according to research firm The Smart Cube.

Heavy rains in northern Europe coupled with “exceptionally wet” weather during the UK’s harvest period have raised concern about a potential reduction in wheat crop quality, said the research firm.

It said that milling wheat premium in the UK is expected to remain high. Lower-than-estimated growth in the northern hemisphere’s wheat supply, harvest delays in Europe and geopolitical tensions in the Black Sea region will further support a hike in wheat prices.

Cumulative wheat output in major producing nations such as the US, Canada and the UK is forecast to drop 1.5% Year-over-Year (YoY) in the marketing year 2023/24. The Smart Cube said that ending stocks during this period are also projected to slump 9.6% YoY, increasing the likelihood of wheat prices rising.

Sugar and egg prices to remain firm

Global sugar prices are also likely to remain firm in the short term. This is driven by ongoing dry weather brought about by the El Niño weather phenomenon in key sugar-producing countries, such as India and Thailand, which is set to negatively impact sugar output.

Senior commodity specialist at The Smart Cube, Kumar Amit, said that India – the second largest sugar producer in the world – may restrict sugar exports amid the expected drop in production. He explained: “This is anticipated to cause the sugar market to witness a supply deficit of roughly three million tonnes in the marketing year 2023/24.”

According to The Smart Cube, a supply shortfall of eggs in the UK is expected to keep prices elevated from September to November. Egg farming costs in the UK have increased because of high feed prices and increasing avian flu insurance premiums, which has further affected productivity. Production of egg products in the UK fell 11% YoY in the first half of 2023.

Increasing imports from less expensive markets, including the EU and Ukraine, may enable retailers to offer deals or discounts, said the research firm. It claimed that this could lessen the financial strain on bakers and help in counteracting any significant decline in demand.

Butter prices to remain “significantly” lower

One exception to these increasing prices is butter, claimed the research. Kumar Amit explained: “Although the cost of butter might inch up slightly in the short term amid a seasonal rise in demand and a projected growth in milk prices, overall prices are expected to remain significantly lower compared with the levels observed in 2022. This is due to sufficient supply and low input costs in the region, which caused butter prices in the UK to fall by around 36% YoY in July.”

He added: “[Consumer] spending on ingredients will be higher compared to last year due to the elevated costs of these key baking ingredients.”