Wheat prices hit record high

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

  • close
    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.
    View Caption
  • close
    Valuable commodity: James Bergin of Clear Flour Bakery in Brookline, Mass., pours a sack of flour to make a batch of dough.
    View Caption
  • close
    Wheat rising: Abe Faber, co-owner of Clear Flour Bakery, tosses a loaf of German rye bread in the air. The Clear Flour Bakery has worked hard to introduce whole-grain German rye bread to its customers. But now, it can't get hold of the rye. Mr. Faber also said his flour costs have risen 250 percent in the past year due to the rise in wheat prices.
    View Caption
  • About video ads
    View Caption

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.

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.

In fact, US stocks of wheat are now at their lowest level in 60 years. By the time the June harvest of spring wheat begins, there will be 27 days of wheat left in storage, estimates the US Department of Agriculture (USDA). (The normal supply is three months.)

"We think it's a dire situation," says Lee Sanders, senior vice president for government relations for the American Bakers Association, a lobbying group, which has asked its members to brief members of Congress on March 12. The group has also set up meetings with Agriculture Secretary Ed Schafer and the White House. Their goal is to free up land that has been put aside for conservation purposes.

While Washington debates, the impact of rising wheat prices is already being felt on many levels. Wegmans, a grocery chain based in Rochester, N.Y., says it has raised prices on packaged breads from 10 to 50 cents. Prices have also gone up on cakes mixes, crackers, cookies, and cereal. "We have absorbed some price increases, but at a point, you have to charge more," says Jo Natale, a spokeswoman for the grocer.

The flour that consumers use to do their own baking is also going up in price. Last October, King Arthur Flour, a producer of premium flour based in Norwich, Vt., raised prices by 12 percent. It just announced another price increase – of 46 percent – for grocery stores and retailers effective April 1. It has tried to explain the price hikes to its customers on its website.

"My biggest worry is the consumer," says Michael Bittel, the company's general manager. "It will take three years of top-notch crops that exceed demand and refill stocks."

Some bakeries say they're having trouble getting some products. In Brookline, Mass., the Clear Flour Bakery has worked hard to introduce whole-grain German rye bread to its customers. But now, it can't get hold of the rye.

"It's frustrating after building up the market that for three weeks in a row, we have not had it," says Abe Faber, co-owner of the bakery and a board member of the Bread Bakers Guild of America.

Wheat growers say the best cure for high prices is .... high prices, since they will prompt farmers to plant more wheat. Last week, the USDA estimated that would happen in the next growing season.

Unfortunately, many US farmers won't benefit from the current prices since they won't have a crop until June or July. "The vast majority have not been able to benefit," says John Thaemert, president of the National Association of Wheat Growers and also a farmer in Sylvan Grove, Kan.

He ticks off how the farmer has been hit by higher energy costs and fertilizer expenses. "We've had seven years of drought, people questioning my sanity while we're out here busting our buns," he says. "Now, there is the possibility of healing some of the hurt, paying some bills, and hopefully bringing another generation into farming."

In his part of Kansas, there has been good moisture this winter. He hopes to do all he can to produce wheat for the markets. "We've had some rain and a foot of snow. It was just beautiful," he says.

About these ads
Sponsored Content by LockerDome

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.




Save for later


Saved ( of items)

This item has been saved to read later from any device.
Access saved items through your user name at the top of the page.

View Saved Items


Failed to save

You reached the limit of 20 saved items.
Please visit following link to manage you saved items.

View Saved Items


Failed to save

You have already saved this item.

View Saved Items