March 15, 2008 in Business

Wheat prices driving up grocery costs

Betsy Blaney Associated Press

LUBBOCK, Texas – If you think the cost of gassing up your car is outrageous, wait until you need to restock your pantry.

The price of wheat has more than tripled during the past 10 months, making Americans’ daily bread – and bagels and pizza and pasta – feel a little like luxury items. And baked goods aren’t the only ones getting more expensive: Experts expect some 80 percent of grocery prices will spike too, and could remain steep for years.

“It’s going to affect everything … impact on every section of the grocery store,” said Michael Bittel, senior vice president of King Arthur Flour Co. in Norwich, Vt.

Consumers such as Maria Cardena feel trapped by the prices. She said the bread she buys has jumped from 69 cents a loaf to $1.09 in recent weeks.

“You have to buy it,” said the 29-year-old mother from Lubbock, Texas. “You can’t go without it. Everything has gone up.”

The wheat market has been pushed higher by a combination of agricultural, financial and energy issues.

Poor wheat harvests in Australia and parts of Europe and the U.S. have caused China and other Asian countries to buy up more American crops, which are especially attractive because of the weak U.S. dollar.

At the same time, the American crop is shrinking because of federal incentives to grow corn for ethanol. And skyrocketing gas prices make it costlier to get any wheat to market.

Those same pressures have also made it more expensive to supply feed grains for dairy and beef cattle and poultry, driving up costs throughout the grocery store.

At Bob’s Red Mill flour company, wheat flour has typically been subject to retail price adjustments every five years. Now those increases are happening almost monthly.

“You look at the price and you say, ‘Oh, my gosh,’ ” said Dennis Gilliam, executive vice president of sales and marketing for the company in Milwaukie, Ore. “It keeps climbing every day.”

Wheat historically trades at $3 to $7 a bushel.

But this week, futures of spring wheat – which produces the flour used in hearth breads, rolls, croissants, bagels and pizza crust – were close to $18 a bushel on the Minneapolis Grain Exchange. They climbed as high as $24 in late February.

Consumers pay an additional penny on wheat products for each dollar the price-per-bushel increases. “It’s a huge impact,” said Steve Mercer, spokesman for U.S. Wheat Associates, an industry group.

White bread cost an average of just 85 cents a pound in 1998 and $1.03 in February 2007. The price rose to $1.32 a pound last month, according to federal data.

And that’s on top of overall food price increases of 4 percent last year and an additional 3.5 to 4.5 percent expected this year, according to federal data. Most years see 2.5 percent increases.

During the past few months, the price of cereals and baked goods has risen nearly 6 percent over the same time last year, federal officials reported.

Consumers can try to minimize costs by buying fewer wheat products, but the nation’s bakers, pizzerias and other flour-dependent industries don’t have that luxury.

Panera Bread Co. is paying more than double what it paid for wheat in 2007 – an additional $26.5 million this year, according to its latest earnings report.

At Kraft Foods Inc., producer of Ritz crackers and Chips Ahoy cookies, the cost of commodities including wheat were up 9 percent last year, or about $1.3 billion. The company has offset most of those costs by finding savings elsewhere, such as switching its Miracle Whip sandwich spread from glass to cheaper plastic bottles.

Meanwhile, some consumers are taking the opposite path – baking more. King Arthur’s Bittel said that while store-bought bread is running between $3 and $5, a home-baked loaf will cost about 60 cents.

That’s up from 40 cents from a year ago, but Bittel said his company nevertheless has seen growing sales of bread-making machines.

Some experts said wheat prices may be close to topping out. But whether prices come down, and when, is a guessing game.

Global wheat stocks have hit a 30-year low following seven of eight years in which world consumption exceeded production. Federal projections show America’s supplies at their lowest levels since the late 1940s.

Earlier this week, representatives of the U.S. baking industry went to Washington to ask the Bush administration and Congress to address the record wheat prices.

© Copyright 2008 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

Thoughts and opinions on this story? Click here to comment >>

Get stories like this in a free daily email