In order to start alchemy, create a Mortar and Pestle and an Alchemist Table. Put the Mortar and Pestle into your off-hand slot, hold the ingredient in your main-hand and hold right-click to process the item.
You can make bread the following way: Grind wheat into flour, then mix it with water in the Alchemist Table to create a Sourdough. You don't necessarily need more than one piece. Craft a Glass Jar and put the Sourdough in it by right-clicking with the Sourdough in your main-hand. After waiting for a bit, you can remove it and combine it with water and three pieces of Flour to create some Doughs. Finally, you can bake it.
For water, you can also fill the vanilla bowls by right-clicking on water.