I received the following article about price of wheat affecting price of bread. The replies are also interesting because they point out the predicted price increase on bread is bigger than price increase of wheat. Isn't that how it always goes?
ECONOMY
Drought Forces Grain Prices
To Rise, Food Firms to Import
By SCOTT KILMAN and PATRICIA CALLAHAN
Staff Reporters of THE WALL STREET JOURNAL
CHICAGO -- The crop damage caused by the drought is beginning to force some
U.S. food companies to raise prices and others to take the unusual step of
importing grain.
Great Harvest Bread Co. franchisees are beginning to raise retail prices of
some loaves by as much as 10%, or about 30 cents. "It's getting hard to find
good-quality wheat," said Janet Tatarka, director of franchise services for
the Dillon, Mont., chain of 167 bread shops. "And honey prices are
ridiculous, too," she adds.
The executives of Heinemann's Bakeries Inc., a closely held Chicago baker,
are facing the highest flour costs in the company's 73-year history. The
bakery, which uses 4.2 million pounds of flour annually, might have to pay
13 cents a pound once its current supply contract expires in November. The
company has been paying 9.3 cents a pound.
If prices don't weaken soon, "we'll maybe pass on some of the cost to
consumers, and some we'll eat," said Paul Krug, inventory-control
supervisor.
The price of the variety of wheat used to make bread, mostly grown on the
Great Plains, has soared 63% so far this year. A drought has helped to cut
the production of all types of U.S. wheat this year to the lowest levels
since 1972. Droughts in the wheat-growing belts of Canada and Australia also
are helping to slash world reserves by a whopping 20% from just two years
ago.
The situation grew more severe when the U.S. Agriculture Department Monday
cut its August forecast of U.S. wheat production by another 4% to 1.62
billion bushels, which is 17% less than last year's U.S. harvest. The move
prompted grain traders to predict that U.S. wheat reserves -- the amount
left over before the start of next year's harvest season -- will drop to the
lowest level in 24 years.
"The food companies which haven't already locked in a supply of wheat are in
for a brawl," said Daniel Basse, president of AgResource Co., a Chicago
commodity advisory firm.
Wheat is the crop hardest hit by the drought, which has persisted for
several years in some parts of wheat-growing states such as Kansas, Colorado
and Montana. Compounding the problem, the drought invaded other parts of the
Midwest a few months ago, reducing the potential size of the corn and
soybean crops there.
In another headache for the food industry, grain companies are beginning to
detect a potent carcinogen called aflatoxin in the new corn crop. The toxin
is excreted by a soil fungus called Aspergillus flavus, which flourishes
during hot and dry weather.
The scope of the outbreak, which won't be clear for weeks, will further
reduce the amount of good quality grain available to food companies. The
U.S. Food and Drug Administration bans the use in human food of any corn
that contains more than 20 parts per billion of aflatoxin. Many dairy and
livestock producers also avoid suspect corn.
The supply of good quality grain is getting so expensive that some U.S.
firms are discovering that it is temporarily cheaper to import from across
the Atlantic Ocean, a role reversal for the world's biggest crop exporter.
Smithfield Foods Inc., the nation's biggest pork processor, said Monday it
is part of a consortium importing 25,000 tons of low-quality wheat from the
United Kingdom. The wheat, which is slated to arrive by ship in Wilmington,
N.C., this month, will mostly be used to fatten livestock.
Many of the nation's largest food companies are temporarily shielded from
the drought because they lock in the price at which they buy crops for a
year or longer. But many of these contracts will expire by next spring. If
the drought hasn't eased by then, and grain prices remain high, then they,
too, will see their commodity costs climb significantly.
"We aren't protected forever," said Frank W. Coffey, the chief financial
officer of Interstate Bakeries Corp., which has brand names that include
Wonder, Hostess and Dolly Madison.
Write to Scott Kilman at scott.kilman@wsj.com
1 and Patricia Callahan at patricia.callahan@wsj.com
2
URL for this article:
http://online.wsj.com/article/0,,SB1033418291581785913.djm,00.html
Hyperlinks in this Article:
(1) mailto:scott.kilman@wsj.com
(2) mailto:patricia.callahan@wsj.com
Updated October 1, 2002
-----Original Message-----
From: Mike Callicrate [mailto:mike@nobull.net]
Sent: Wednesday, October 02, 2002 11:07 AM
To: News
Cc: Patricia Callahan; Scott Kilman
Subject: The Wall Street Journal needs to hear from you!
Farmers, Ranchers and Consumers,
Scott Kilman and Patricia Callahan need to hear your thoughts on the price
of bread as compared to the low price of wheat at the farm gate. Big
processors and retailers have the Wall Street Journal's global voice to
condition people to accept higher food prices and to provide cover for their
corporate wrongdoing.
Who's speaking for the farmer who is receiving the lowest share of the
consumer food dollar in history?
Who's speaking for the consumer who is paying record high prices for food
while U.S. farms and ranches go out of business?
Who is speaking for the taxpayer who is funding a farm bill that guarantees
permanent farm poverty and a growing dependence on imported food?
Who is exposing the legislators that cater to big corporate interests while
ignoring the interests of their constituents in supporting farm programs
that fail to protect open, competitive markets, and that fail to provide a
dependable and safe domestic food supply?
Who is speaking for the foreign farmer whose grain is being stolen by this
same Wall Street global food cartel?
Who is speaking for the farms, rural communities, and main streets around
the world that are being pitted and leveraged against one another, strip
mined, and laid to waste by companies like Cargill, ConAgra, Tyson/IBP, and
ADM?
Scott Kilman can be contacted at: scott.kilman@wsj.com
Patricia Callahan can be contacted at: patricia.callahan@wsj.com
Mike Callicrate
P.O. Box 748
St. Francis, KS 67756
785-332-3344
mike@nobull.net
www.nobull.net
www.nobull.net/legal
_____
Hi Scott,
Read your WSJ article on grain prices going up. So the Chicago baker is
paying the highest price for flour in 73 years--the price has increased from
9.3 cents per pound to 13 cents per pound--3.7 cents. Do you think there's
more than a pound of flour in a one pound loaf of bread? In other words, a
one pound loaf of bread only needs to go up 3.7 cents to cover the increased
cost. Would the consumer even notice? Especially on one of the designer
loaves at $2 or more a loaf. Why didn't you bother to include this
reasoning? The price of a loaf of bread has obviously inflated over the
years at a much higher rate than wheat. In fact the wheat price has
actually gone down over the years when the price of bread doubled.
Similar stories are common about the "poor candy makers"--Mars, Hershey,
Cadsbury, etc. A candy bar has easily less than 5 cents worth of sugar in
it, yet it costs me 69 to 79 cents in the store. Those poor candy makers!
Did you ever think to mention those "poor farmers" who have been getting
closer to bankruptcy every year and their ever declining communities?
George Naylor
_____
The Wall Street Journal
Wall Street Journal Article and replies (long post)
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