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Serious Dough
Higher Wheat Prices Drive Up Bills for Grocery Staples

By Cecilia Kang
Washington Post Staff Writer
Saturday, September 15, 2007

First it was corn. Now wheat is getting the blame.

Earlier this year, corn began getting pricey because it was in high demand to make ethanol. That sent prices rising for other corn-dependent products, including milk and meat. Now wheat is costing more and more because of poor harvests and greater global demand, sending grocery bills still higher.

The price of wheat futures reached a record $9 a bushel on the Chicago Board of Trade on Wednesday. And the higher food prices that have resulted from the increase -- items like baguettes, rigatoni and cupcakes cost more -- come at a time when consumers are already feeling strained by energy prices and mortgage debt.

Although wheat doesn't touch as many foods as corn, which is used in products as varied as livestock feed and high-fructose corn syrup, its price directly affects staples such as cereal and bread.

The Bureau of Labor Statistics reported that food prices increased 4.2 percent in the 12 months ended in July. That compares with a rise of 2.2 percent in 2006. The consumer price index for food, which includes groceries and dining out, is forecast to increase 3.5 percent to 4.5 percent this year, according to the Agriculture Department.

Those numbers have real consequences for Steve Rurka, owner of Spring Mill Bread in Bethesda. First, the price of the organic wheat berries he buys from Montana farmers has increased 55 percent from last year, to $14 a bag. Facing more expensive baking supplies and gas prices and higher rent, he tacked on another quarter to the price of his two-pound loaf of whole-wheat bread, bringing it to $4.50.

"There are just so many factors that are contributing to us having to raise prices, and higher wheat prices is a major one," said Rurka, who grinds wheat berries for his breads at his Bethesda store.

Not all food prices are going up fast. Bananas and tomatoes went up only slightly in July from last year. Yet the fluctuations within one shopping basket can be enormous. Egg prices are expected to soar 20 percent this year, but pork only 1 percent to 2 percent, according to Agriculture Department forecasts.

Although food makes up only about 13 percent of total household spending, higher food costs worry economists who say that for every extra dollar spent on groceries, a dollar less will be spent on discretionary items like clothes and entertainment -- purchases that fuel overall economic growth. And at a time of uncertainty over the housing market, stock market and jobs, consumers are more acutely aware of such price increases, they say.

"The U.S. consumer buys 70 percent of production of the economy, so when they stop buying, it's a real problem," said Charles W. McMillion, president and chief economist of MBG Information Services.

Higher prices have made Donna Beardsley reconsider much of the food she purchases for her mother and herself each week. The 50-year-old, single Fairfax resident stopped buying rib-eye steaks in the summer and avocados more recently and said there is often little left for much else after grocery shopping. Her mother recently had surgery, which has Beardsley even more cautious of her budget.

"For someone living in a high-income area like this who doesn't have a high income herself, every little price increase is a strain," she said in a Safeway parking lot in Fairfax.

Ethanol, a fuel that can be derived from corn products, set some of the rising grocery prices in motion. Demand for ethanol caused a worldwide shortage of corn this year, sending prices for futures of the crop on the Chicago Board of Trade above $4 a bushel last June, compared with about $2.50 two years ago. As farmers scrambled to grow more corn, crops such as wheat and soybeans were replaced, reducing their supply, according to Michael Swanson, a Wells Fargo agricultural economist.

Droughts and poor weather that hurt crops in Australia and the Midwestern United States pushed prices for the corn sharply higher as demand increased from importers in North Africa and Europe. The Agriculture Department said this week that it raised its projections for wheat exports.

That has trickled down to the shopping basket, as prices in July for cereal and bakery goods increased 4.1 percent from a year before, compared with 1.8 percent the previous year.

It's not just here. Higher pasta prices prompted consumer groups in Italy to launch a one-day boycott of pasta this week. Prices there have soared as much as 20 percent.

"Wheat is much more concentrated than corn in terms of the products it's used in, but people will keep eating even if it gets more expensive," Swanson said.

He said food prices are expected to continue increasing through the end of the year as the effects of higher wheat, corn and soybean prices work their way through the food production pipeline. But he said wheat prices will fall back to more normal levels as production catches up with demand next year. Corn prices will also normalize, he predicted, because ethanol producers can't afford to pay lofty prices for the commodity.

Butch Meharg, a 49-year-old Fairfax resident, has felt the price increases for months. He recently came to a Safeway in Fairfax to buy steaks, bread and instant coffee that he saw were on sale in a newspaper advertisement.

With beef prices up 6.4 percent in the past year, it's been harder to afford his favorite meal, T-bone steak. Now, he loads up on bread, coffee and other goods when there is a sale. He said he tries to make his streak last longer by cutting it into smaller portion sizes and freezing portions he doesn't eat right away, making sure nothing goes to waste.

While loading his blue SUV with several bags full of sale items, Meharg said: "I do anything to find the deals now -- look at coupons and take more than one trip to different stores. It's worth it."

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