Archive for Wednesday, March 19, 2008

Price factors

The cost of the actual food we buy in the supermarket pales by comparison to the cost of processing and shipping it.

March 19, 2008


It's no news to anyone pushing a shopping cart through a grocery store that prices have been going up. The price of products made from wheat have drawn particular attention because of record high prices being reported on grain exchanges.

It would be wrong, however, to think that wheat farmers in Kansas or anywhere else are reaping a windfall from the price of a bag of pasta or a loaf of bread.

In the first place, most farmers have long since sold last year's wheat crop - and at prices far below the current $11 or $12 per bushel. They thought they were doing well back when they sold their wheat for $8 or $9 a bushel in order to make loan payments or pay fertilizer bills that were due after harvest. Many already have sold this year's wheat through the futures market, but others are hesitant to commit to a price while the market is showing such fluctuation.

Some of the figures reported by the national media also exaggerate how much the price of wheat affects consumer products. An Associated Press article last week implied that most of the reason the price of a loaf of bread had jumped from 69 cents to $1.09 was because of the price of wheat. Yet, elsewhere in the same story, a spokesman for a wheat industry group estimated that consumers pay an additional penny on wheat products for each dollar the per-bushel price for wheat increases. So even if the price of wheat has gone up $10 a bushel, that would account for only a 10 cent increase to consumers, not a 40 cent increase in bread prices.

Far more important than the price of wheat are the costs to package, advertise and transport that bread to market, not to mention paying wages and health insurance costs for bakery employees. According to the Kansas Wheat Commission, a one-pound loaf of bread had about 4 cents worth of wheat in it 10 years ago, compared with about 11 cents per loaf by December 2007. During that same period, the price of a gallon of regular unleaded gasoline rose from about 97 cents to about $3.05. That raises the cost of getting a loaf of bread to market, but it also greatly affects the cost of operating farm machinery and fertilizing crops.

The price of wheat is causing some nervous flour users to call for the government to pull land out of conservation programs or restrict the sale of wheat overseas. That would be an overreaction that would hurt wheat farmers who have worked hard to develop international markets.

The fact that food prices are rising is a legitimate concern to families trying to stretch their budgets. But while it may be tempting to make the simple connection between rising wheat prices and the price of bread, it's important to consider the many other factors involved.


gr 10 years, 3 months ago

Anyone believe if wheat prices fall, that bread prices will, too?

SpiritTat 10 years, 3 months ago

I agree w/ya, offtotheright (must admit, I'd not oft thought i'd say that in a blog ;)) - just a little good-natured ribbing..)

but I do believe that we'll not see prices go down for much of anything... not down by much ever again in fact.. regardless if wheat, grains to feed livestock & dairy cows, etc goes down. once the powers that be see what they can gouge from consumers, who in their right profit-before-people mind would ever lower it??

love your blogs, folks... you all keep me interested and oft entertained! xoxo

BigPrune 10 years, 3 months ago

I had a hard time growing wheat and corn last year. I got a nasty letter from the City that I had to mow it down. I just want to reduce my carbon finger foot. I'd move to old West Lawrence, but I'm not fond of using a chamber pot. At least I could grow my crops in peace.

gr 10 years, 3 months ago

"Whenever I can find locally grown or produced food, I usually buy it. It doesn't cost as much since it wasn't shipped all over the country and it is fresher."

That isn't always true. Sometimes, locally grown or produced food is priced higher. That is because of the "novelty" of being local, and they can charge a higher price. It's kind of like those who voluntarily pay for "green" power from the power company, even though the actual power is no different than if they didn't choose that option.

The same product produced in Lawrence may sell at a lower price in another state in order to compete, but because people are willing to pay for an intangible "feel-good" feeling, it is priced higher locally. Therefore, cost-conscience buyers will non-locally for lesser cost.

notajayhawk 10 years, 3 months ago

And of course the demand for grains to be used in alternative fuels hasn't had any impact?

Anybody notice what's been happening to the price of pet food or livestock feed lately? Funny, but if the problem is the increased cost of gasoline driving transportation costs up, why does a 20 pound bag of cat litter cost the same as it did before gas prices went up, but a 20 pound bag of cat or dog food has gone up 20-25% or more?

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