2 Beer Guys Blog

Welcome to the 2 Beer Guys Blog! Here, you will be able to read our stories and adventures as we travel through the world of craft beer.

Sunday, October 21, 2007

Grain: The new gold - Bakers, brewers hit hard by skyrocketing wheat prices - EagleTribune.com, North Andover, MA

By Bill Kirk, Business Editor

Brewer David Wilson stood in the basement of The Tap on Washington Street in Haverhill as one of his assistants poured a bag of malt - a grain used to make beer - into the noisy milling machine.

He shook his head as he recited the recent price increases for ingredients that go into making beer at the popular downtown brew pub.

Base malts, used to make many of the beers at the pub, have gone up 50 percent. Specialty malts, for finer brews, are up nearly 100 percent.

"This is a worldwide crisis," said Wilson, who recently was hired to take over beer-making at the brewery.

In Lawrence, wholesale baker Multi-Grains is suffering from a similar plight.

The price of flour has skyrocketed, forcing the company to jack up its bread prices to clients, which range from small restaurants to huge grocery store chains.

"Wheat is the new gold," said Chuck Brandano, who co-owns the Water Street business with company founder Joe Faro. "In a normal year, our prices would go up 1 to 2 percent a year. From the end of 2006 to August 2007 prices have gone up 8 to 10 percent."

Especially in the past few months, grains of all kinds have skyrocketed to historically high prices, leaving brewers, bakers and their customers fuming and trying to figure out how to make ends meet as the cost of everything else keeps going up, too.

Global economy, local impact

People in the bread, beer and pasta business blame the high cost of wheat and other grains on a variety of factors that seem to have converged in the last couple of months.

Some of the reasons cited:

* Poor weather - droughts in one part of the world and rain and freezing temperatures in other parts - has reduced crop yields in Australia, Canada, Argentina and the United States.

* Farmers worldwide are planting corn to take advantage of the high demand - and price - for ethanol, reducing the acreage devoted to wheat and other grains.

* Speculators working for Wall Street hedge funds are buying up grain in large quantities and then selling it for a profit, further driving up the price.

* More U.S. wheat is going overseas as a result of the weak dollar and increasing demand from rapidly developing countries like China and India.

"Wheat is really a worldwide crop in terms of how U.S. prices get moved around," said James Pritchett, an agricultural economist at Colorado State University. Colorado is practically the only wheat-growing region in the country that produced a bumper crop, but nearly 80 percent of that state's harvest is exported.

While wheat and grain prices have been going up pretty steadily over the last year or so, industry insiders say the spike really occurred in the last couple of months.

In fact, the price hike is so recent - bakers and brewers often buy their grain or flour months in advance - that customers in many cases haven't felt the pinch. But they will - and soon. A random sampling of bakeries across the North Shore and the Merrimack Valley indicates that prices will rise in the next week or two at many shops.

"I haven't increased prices, but unfortunately I have to in the near future," said Greta Reineke, owner of Greta's Grains on Pleasant Street in Newburyport. "I have to do it in order to survive."

Supermarkets are trying to keep their prices down, too, but that's getting tougher, says Brandano, noting that chains like Stop & Shop and Shaw's say they don't want to raise their prices over $2.99 for a 1-pound (16-ounce) loaf. He said some of his clients now are requesting 14-ounce loaves of bread for a lower price. Some restaurants may even start charging for bread served in baskets at the table.

While beer prices at The Tap are remaining steady at $4 for a 16-ounce beer, the owners are mulling a price increase. Wilson, who is taking over as head brewer from David Labbe, said craft brewers are closely watching Budweiser to see if the beer giant increases its prices an expected 25 percent. If that happens, he said, smaller brewers will be able to get away with hiking prices, too.

"We have not worked out prices moving into next year," Labbe said. "We will be re-evaluating them. Prices are absolutely going to go up."

It doesn't end with beer and bread.

Pasta, crackers, snacks and desserts of all kinds including cookies and cakes, even cattle feed and grain for horses, will get more expensive.

Eating the cost

Mike Withrow, owner of the Pie Guy in Salem, N.H., said the price of a 50-pound bag of flour went up a month ago from $9 to $13 - nearly a 50 percent hike.

"We go through 100 bags a week, so our costs went up $400 a week, or $1,600 a month," he said. "And there's no sign it will go back down."

The Pie Guy is aptly named. When Withrow bought the business in 2001, the bakery was making about 250 pies a week. Now, workers there make 20,000 pies a week. Withrow has 25 to 30 employees, depending on the season.

Despite the higher cost of raw materials, for now he's keeping prices steady. Plus, he's skeptical of the explanations his suppliers offer for the high cost of wheat.

"They give me reasons, but I believe none of them," he said. "It's been a cycle. The creators of the product - the millers - they have their own strategies."

He wouldn't elaborate further, but at least one executive who works for a company that supplies flour to hundreds of businesses throughout New England, including many on the North Shore and in the Merrimack Valley, agreed - to a point.

Lester Collett, the purchasing agent for Waltham-based Bakers Pantry, also known as Savage and Co., said he buys about 1 million pounds of flour, or 20 truckloads, every three days. Millers are definitely charging more, he said. But it's not their fault.

"It's a lot of things," Collett said, noting that the value of the dollar is down 31 percent, making it cheaper for foreign companies to buy U.S. wheat.

"The world situation on grains is terrible," he said. "Production is way down in Argentina, Australia, the U.S. and in Canada."

Meanwhile, the worldwide demand keeps rising.

"There is literally not enough wheat to go around now," Collett said.

Adding to the problem is that the futures market, fueled by huge purchases by hedge funds, is also forcing the market up.

"What they do is unload their contracts before the price slides back down again," he said.

The cost of wheat in the futures market, he said, is "the highest I've seen since 1996 or 1997, and this has surpassed that easily. This is out of sight."

The result is that the price he charges his customers also is going up.

"A 100-pound bag was going for $15 to $16 a year ago," he said. "Now, it's closer to $30."

It's even more for organic flour or unbleached and unbromated varieties, according to some local bakers.

Other costs rising, too

Joe Virgilio, who owns Virgilio's on the West End of Main Street in Gloucester, is having similar problems.

He said his flour, which he buys from Savage, has gone up 60 or 70 percent.

"I haven't touched my prices, I'm going to wait to see what happens," he said. "They say it could come down."

Even if it doesn't, his other costs are killing him as well.

"My natural gas bill has doubled," he said, referring to the fuel he uses to power the walk-in ovens that cook 180 loaves at a time. "Back in 1998, the gas bill was $300 a month," he said. "Now, it's $600 to $700."

The electric bill to run the lights and appliances, especially the enormous freezer in the basement of his Main Street store, has gone up from about $500 a month to $1,200 a month.

Reineke, of Greta's Grains in Newburyport, agreed with Virgilio that "everything is going up like crazy."

"The last year was the worst," she said. "Everything went up - delivery charges because of higher fuel charges, then sugar, flour, cream, milk, butter, eggs. You name it. Now, flour, the biggest ingredient, is going up."

"The increase of the wheat will really have an impact. ... especially the organic stuff - that's even worse because the supply is lower," she said.

She hasn't increased her prices yet, but expects to soon.

"You can only absorb so much," she said. "You get to a point where you can't do it anymore."

Uses of Wheat

As the price of wheat continues to rise, the prices of many products that use wheat or other grain products are also likely to go up.

Some of those include:

* Flour
* Bread
* Pasta
* Cakes
* Noodles
* Couscous
* Vodka
* Livestock feed - meat could also go up in price as a result.
* Cereal



Post a Comment

<< Home