Notice lately that the price of bread, or even your favorite cookie, is jumping?
Well, you can partially thank everything from fears of bad weather in Australia to the improving dietary habits in China, both of which are among factors that drove the price of wheat to another record Wednesday.
Wheat is, of course, a key ingredient in baked goods, though some would argue it’s a relatively small component in setting the retail price for, say, a box of crackers. Still, bread prices appear to be rising in 2007 at levels not seen in this decade.
On Wednesday, wheat futures for December delivery on the Chicago Board of Trade rose 30 cents, the daily maximum limit, to $8.35 a bushel, about 70 percent more than what the December contract was trading for a year ago. Wheat prices have set record highs 16 times since June 27.
The price surge is “unprecedented,” as global grain stocks are at low levels not seen since at least 1973, said Dale Durchholz, a senior market analyst at AgriVisor Services LLC, part of the Illinois Farm Bureau.
Bread prices have behaved far less dramatically, but they began rising in the second half of 2006 and then steamed ahead, according to data from the Bureau of Labor Statistics.
The average year-over-year bread price increase from January through July this year was 7 percent, compared with 2.3 percent in 2006, according to a Tribune analysis of government data. This year’s average increase in bread prices appears to be the highest this decade.
Overall, bakery products, which include bread, cakes and crackers, experienced a 4.2 percent average price rise from January through July, up from 2.2 percent during the same time a year ago.
High wheat prices were a reason Downers Grove-based Sara Lee Corp. boosted prices on its baked goods this year.
In a teleconference with analysts last month, Sara Lee Chief Executive Brenda Barnes said the company was able to increase its prices on bakery products enough to offset higher costs for wheat. She noted, too, an additional price increase is scheduled for this month, again reflecting rising wheat costs.
Barnes said that “extremely high wheat and fuel costs” are issues throughout the food industry. Fuel costs are crucial for the pricing of any consumer good; a coffee cake needs a truck or train to get to your kitchen table. Packaging costs are big, too, as are manufacturing costs.
In fact, commodities such as wheat or corn make up a relatively small part of the retail price of packaged food, industry observers say. Wheat has been estimated to make up about 5 percent of the value of a loaf of bread, said Jay O’Neil, senior agricultural economist at Kansas State University’s International Grains Program.
So, food prices tend to rise on a confluence of factors. “If you are a miller or a baker or a distributor, you are being hit,” O’Neil said. “But it is a double or triple or quadruple whammy.”
Increases in prices for baked goods haven’t been a big issue for American consumers so far, said Benjamin Senauer, co-director of the University of Minnesota’s Food Industry Center.
First, wheat is a relatively small player in the food business compared to corn, a key ingredient in everything from artificial sweeteners to animal feed.
Second, Americans tend to complain less about price hikes for baked goods than they do about those for meat, milk, eggs and orange juice, Senauer said. And prices for some of those items, particularly eggs, have been rising at a faster clip.
Rising wheat prices have been more of an issue in large, fast-growing countries such as China and India, Senauer said, where wheat demand has been rising over the years. That’s part of a natural development: As a country’s economy improves and its living standards rise, its demand for food increases.
Global wheat demand, though, has increased more than supply. “We have seen wheat supplies on a world basis continue to shrink,” said AgriVisor’s Durchholz. “We have not put a lot of investment into increasing output.”
Wheat, apparently, hasn’t seemed to offer a lucrative enough return.
Short-term demand for wheat is currently stronger than expected. Meanwhile, bad weather has wheat traders fretting. Wheat fields in parts of Europe have already been ravaged. Now, worries are spreading about dry weather in Australia.
“There’s a lot of panic buying,” Jerod Leman, a broker at Wellington Commodities, told Bloomberg News. “People are trying to get [wheat] when they can.”
As in all things economic, there are winners, and that group would include U.S. wheat farmers who haven’t had weather problems. U.S. wheat exports are running far ahead of expectations this year, Durchholz said.
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mhughlett@tribune.com
