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Wheat, corn costs drive up consumers' grocery bills
By CECILIA KANG
The Washington Post
Monday, September 17, 2007
http://www.azdailysun.com/articles/2007/09/17/news/20070917_front%20page_7.t
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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.

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 forecasts by the
USDA.

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.

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
U.S. pushed prices for the corn sharply higher as demand increased from
importers in North Africa and Europe. The USDA said earlier this week that
it raised its projections for wheat exports.

That's 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 strike against buying 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.