High Wheat Prices Raise Grocery Costs

[March 15, 2008]  LUBBOCK, Texas (AP) -- 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 because wheat and other grains are used to feed cattle, poultry and dairy cows.

"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 livestock.

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 85 cents a pound in 1998 and $1.03 in February 2006. 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 Company 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. Spokeswoman Lisa Gibbons called that unprecedented and said the company doesn't expect prices to ease anytime soon.

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.

At the online baked goods retailer 1-800-Bakery.com, the price of wheat has meant a hiring freeze and curbing low-profit products. So far, those measures have been enough to avoid price increases. But Stephen Pazyra, the company's chief executive, said prices will go up unless there is relief soon.

Sometimes the only option is to bake less.

Four months ago, Tony's Old Fashioned Bakery in Midland, Texas, was paying $7.50 for a 25-pound bag of flour. This week the cost was $23 a bag - for a company that uses 25 to 30 bags a week.

To stretch their dollar and flour, Carmina Aguilar said her family's bakery is making fewer pastries for display and stopped taking many last-minute orders.

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.

Lee Sanders, senior vice president of the American Bakers Association, said her group isn't asking for a wheat export moratorium, which countries such as Ukraine, Russia and Argentina have enacted. But the industry does want export policies reviewed to ensure domestic bakers have enough affordable flour.

[Associated Press; By BETSY BLANEY]

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