Wheat shortage pushing prices to record highs
by Jason Subik on 29 February 2008 in The Schenectady Daily Gazette
In Schenectday, New York, pizza makers, grocers, consumers all feeling effects.
It used to be that flour was the reliably cheap part of making a pizza.
“I’ve owned the business here for about 15 years and flour has always ranged around $8 to $10 for a 50-pound bag of flour. It’s getting up close to $30 now. It’s gone up about 200 percent,” said Jim Smith, owner of High Bridge Pizzeria in Rotterdam.
Record high wheat prices are squeezing the profit margins of flour wholesalers and retailers in the Capital Region, as well as the wallets of consumers.
Spring wheat for March delivery fell $1.75 Thursday to close at $18.25 a bushel on the Minneapolis Grain Exchange. It traded as high as $25 a bushel this week. Wheat historically trades at $3 to $7 a bushel.
George Walsh, the owner of grocery wholesale company By George in Ballston Lake, said his company sells about 2,000 50-pound bags of flour per week.
“[The price] really escalated over the last eight weeks. It’s still going up. They’re talking about $50 bags of flour. I had the sales manager for General Mills call me up and [tell me] flour’s probably going to hit $35 your cost. Now it’s costing us $28.50, which is ridiculous. Last month it was $15.80,” Walsh said. “It’s terrible.
There is a big shortage of wheat. It’s almost impossible for these guys making a pizza.”
The U.S. Dept. of Agriculture announced Feb. 8 that the U.S. wheat stockpile was the lowest in 50 years, 272 million bushels.
Price Chopper spokeswoman Mona Golub said she has not heard rumors of a wheat shortage, but the wheat price spikes have affected pricing at every supermarket and grocery store.
“This is going to affect any and all products that contain wheat. So certainly fresh bakery and packaged bakery and many, many, many packaged products across the grocery shelves will be affected in months to come,” she said.
In New York state, 100,000 acres of winter wheat was planted this past fall, down 5,000 acres from 2006, according to USDA’s National Agricultural Statistics Service New York Field Office.
For pizza makers, the flour price spike is a double whammy, as cheese prices have also been rising during the past year, in part because of lower-than-normal cheese production and higher demand.
“You get probably 200 to 300 pizzas out of a bag of flour, compared to cheese when it doubled in price. You don’t get that many pizzas out of a pound of cheese,” Smith said. “Everything has gone up. Delivery trucks, look at gas prices. The whole industry has gone crazy. We really don’t have much of a profit margin. Our prices are too low as it is. You tell people that and they don’t want to hear it.”
Some big pizza chains, such as Pizza Hut and Papa John’s International Inc., last year raised the price of their cheese-only pizzas to the same amount as one-topping pizzas at company-owned stores.
Chris Sternberg, spokesman for Louisville, Ky.-based Papa John’s, said in an e-mail Thursday that the chain last fall locked in the purchase of part of the wheat supply needed for 2008. “Through this strategy, which we have continued in 2008, our restaurants are somewhat insulated from the recent run-up in the cost of wheat during the first half of the year.” He said the company is controlling inventory and working with suppliers to control costs.
The spike in cheese costs has been partially attributed to the run-up in dairy cattle corn feed prices caused by increased federal subsidy of the U.S. ethanol industry. Ethanol is alcohol-fuel, which in the United States is mostly made from corn. Increased corn planting means decreased wheat planting.
“The government’s got all of the farmers growing corn because of this [ethanol] stuff. You save a nickel a gallon, but you kill the wheat production,” Walsh said.
In 2007, New York farmers harvested 69.9 million tons of corn from 1.1 million acres of land, up nearly 8 million tons from 2006, when only about 1 million acres was put into corn production, according to the USDA.
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