Prices for U. S. bread and pasta are up nearly 10 per cent from last year, even as the price of wheat used to make the products has fallen 60 per cent from a record high set a year ago.
And while prices have levelled off in recent months, they are not likely to fall significantly in 2009.
Pasta and bread makers said they are still catching up from the dramatic rise in wheat prices in early 2008. Most companies can only raise prices four to six times a year, due to contracts with the retailers they supply.
In addition, the cost of raw materials is sometimes a small part of the overall cost. Labour and health care can represent a bigger percentage of the cost to produce bread and pasta.
“We are still recouping losses experienced over the last few years,” said Linda Chung, senior marketing manager at Nissin Foods USA, the second-largest U. S. maker of ramen noodles.
“We were hurting back even in 2007. There was no margin or fat to cut as prices continued to increase in 2008,” she said. “We weren’t even profitable at some points.”
Prior to 2006, wheat prices at the Kansas City Board of Trade had held steady for a decade at around $3.50 per bushel. Prices rose to more than $5 by the end of 2006 and were more than $9 by the end of 2007 as investment funds bought unprecedented amounts of commodities.
By February 2008, prices of KCBT wheat – the major ingredient in U. S. bread – hit a record high of $13.84-3/4 a bushel.
Maruchan Ramen Noodle, the largest U. S. ramen noodle maker, made the first price increase in 31 years in April 2007 in response to rising wheat and palm oil prices.
“We suffered dearly during that period of time,” said Tom Yoshimura, general manager of sales for the U. S. division.
Record prices motivated farmers to plant more wheat than usual and the large supply combined with the global recession has sent wheat futures back down to $5.60.
“That price is down dramatically from a year ago but up sharply from historical average,” said Joshua Sosland, editor of Kansas City-based Milling & Baking News, a weekly trade publication.
Bread prices level off
For months, bread prices lagged the cost of production and have only recently caught up.
“They have definitely stabilized,” Sosland said. “The last few months they have moved very, very little.”
White bread cost $1.38 per pound in January, up 8 per cent from last year but down from $1.42 in December, according to the U. S. Bureau of Labor Statistics.
Whole wheat bread cost $1.97 per pound in January, up 9 per cent from 2008. Prices are up from December but below the $2 mark seen in the fall of 2008.
Spaghetti and macaroni cost $1.13 per pound in January, up 11 per cent from last year and unchanged from December.
Sara Lee Corp, a major U. S. bread maker, has raised prices four times since April 2007, with the last price increase in mid-2008.
General Mills Inc chief executive Ken Powell said recently that the company, which makes Cheerios and other cereals, expects to hold on to its price increases.
In the past five years, the company’s commodity costs are up about 25 per cent, while General Mills has raised prices of its products 8 per cent to 10 per cent, depending on the category, he said.
Erin Swanson, a food industry analyst at Morningstar, said bread sellers could come under more pressure to lower prices if commodity prices fall and private-label store brands take their prices down.
“It remains to be seen whether they do continue to hold up,” she said.
“A lot of these packaged foods companies buy their (commodities) in advance so even though the prices have come down, they haven’t seen that yet,” Swanson said.