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Wheat prices hit record high

The cost of March spring wheat hit $24 a bushel Monday, double its cost two months ago.

By Ron SchererStaff writer of The Christian Science Monitor / February 27, 2008

Pricey ingredients: Cornelius Howland at Clear Flour Bakery in Brookline, Mass., works on focaccia bread. Wheat, the key ingredient in flour, has in some cases been in short supply.

Joanne Ciccarello - staff

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New York

Dressed in his white apron and baker's hat, Jose Espinal puts the finishing touches on a chicken pot pie that will be sold to customers of Cucina & Co. later in the day. He carefully places a crust on the pie and crimps the top and bottom together.

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But to make the dough for about 300 pies, Mr. Espinal, the pastry chef, used 22 pounds of flour – an item that the store knows will soon be rising in price.

"I'm expecting it this week," says Michael Salmon, director of operations of Cucina, which is in Macy's in Manhattan. "Maybe 20 or 30 percent."

Why the increase? The prime ingredient in flour is wheat, which these days is acting more like oil – rising sharply on commodities exchanges. On Monday, the price of March spring wheat on the Minneapolis Grain Exchange shot up to $24 a bushel, the highest price ever. Within the past month, the price of some types of wheat has risen over 90 percent. Already, agricultural experts say, it's getting hard to find the type of wheat used to make pasta, noodles, pizza, and bagels.

"Supplies of some types of wheat will be extremely tight," says economist William Lapp, president of Advanced Economic Solutions in Omaha, Neb. "I don't think we'll see physical bread lines, but supplies will be just tight."

Companies that use wheat say they are overwhelmed by the sharp rise and have little choice but to pass on at least part of the increase to consumers. Flour manufacturers, for example, are raising prices by at least 30 percent or more. Since the beginning of the year, bread in the supermarket has risen anywhere from 10 to 30 cents a loaf.

Overall, in January, consumer food prices were up 4.9 percent in comparison with January 2007. Cereal and baked goods rose 5.5 percent. Some items went up even more: Dairy products increased 12.8 percent and fruits and vegetables 6.1 percent.

Rising food prices, combined with escalating energy prices and falling home prices, are putting a squeeze on consumers' pocketbooks. A drop in discretionary spending is one reason that economists are increasingly worried about the economy moving into a recession.

Rising food prices also make it difficult for the Federal Reserve, which has to balance rising inflation with a slowing economy.

Yet despite the recent rise in food prices, over a longer period of time, spending on food as a percentage of household income has been declining, points out Michael Rizzo, senior economist at the American Institute for Economic Research (AIER) in Great Barrington, Mass. For example, in 1970, food represented 19.3 percent of household expenditures. By 2006, it had shrunk to 12.6 percent.

"One of the reasons for the decline is the huge increase in productivity: It's become less expensive for the farmer to produce food," he says. "Even among the poorest, the share of their budget going to food purchases is at an all-time low."

Still, there is no doubt that over the short term, products made with wheat will rise in price. Because of the weak dollar and poor harvests abroad, exports of US wheat are up 30 percent this year. It hasn't helped that some parts of Kansas and Oklahoma have had drought conditions. At the same time, some farmers have shifted crops from wheat to corn and soybeans to take advantage of demand for biofuels.

"This has been a very unique year," says Steve Mercer, a spokesman for US Wheat Associates, which promotes American exports of the grain.

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