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Tuesday, March 26, 1974
University Daily Kansan
Costs Increase As Grain Is Transformed into Bread
From Page One
Bob Gebhart, a grain buyer and assistant manager with the Salina Terminal Elevator Co. in Kansas City, said there had been a shortage of cars every harvest and noted that transportation costs had also been rising:
On Feb. 22, be said, there was a 10 per cent increase in rail traffic between the two cities.
Millers, on the other hands, have to contend with finding sufficient transportation to get the wheat to their plants for processing into flour.
Douglas German, a buyer in the grain department of the Standard Milling Coffee in Kansas City, said his company, which produces wheat from markets in Minnesota to company mills in New York, had found shipping by boat on the Great Lakes to be cheapest. But the lakes are closed until the stock is sold, and they have to rely on rail traffic during winter.
"It's a struggle," he said, but his company has been able to maintain its shipping schedules by assembling its own grain trains, usually consisting of 60 to 70 cars.
He gave the following breakdown of milling costs for wheat purchased at $8.11 a ton:
- Sugar 24,000 lb.
- Corn 13,750 lb.
By the time the mill receives the wheat after paying shipping and premiums, he said, the cost a bushel has risen to about $7.70.
It takes 2.35 bushels to get a hundredweight (100 pound unit) of flour, he said, so that the milk to the miller in the store must be about $3.40 for a hundredweight of flour.
During the grinding process, the miller produces a byproduct from the outer hull of the grain which can be used for commercial feed. Given the relatively high prices which were existing at that time for the feed, the miller is forced to back about $1.23 a hundredweight of flour.
Subtract that from $13.40 and you get $12.17. a hundredweight was the bare material.
Of that margin, at least 37 cents is for manufacturing costs, Corman said, 20 cents goes for salaries, administrative costs and operating expenses. That depends on what the competition does, how much the market will stand, and how successful the company has been in hedging on the market, in essence, buying today in the hopes that the market
The price that mills charge for flour goes up and down every day according to the weather.
Every day the mill has to adjust its prices and notify its salesmen accordingly.
Figures released in Wheat Situation, February, 1974, one of a series of quarterly reports by the U.S. Department of Agriculture from 1972 to December 1973, the costs of a hundredweight of flour sold to the bakers and wholesalers went from $7.81 to $11.82. The bakers and wholesalers' share of the price was about 65 percent, only went from 13.1 to 15.9 cents a leaf.
that occurred under current Phase IV price regulations before bakers could pass on increased costs in the price of the bread they sold.
Jack Felton, director of public relations with Interstate Brands in Kansas City, said the brand's new digital strategy is a major step.
Between the time that flour prices go up on the wheat market and the time that the bakery can actually start selling its loaves of bread at a higher price to compensate for the cost increase, he said, there has been a lag of six weeks, mostly taken up by the time required to file a petition in the UK, to mostly grocers of the upcoming price hike.
As things now stand, he added, a 2 per cent return on sales is considered good in the business.
By the time you get to the grocery part of the chain of production, you'll "intrate a whole new ball of wax," according to one officer with a Kansas City grocery chain.
The grocer, too, is worried about maintaining a margin, he said, but cost and profit breakdowns are usually figured in terms of all 7,000 or so items that are sold in the grocery store and not just in terms of the price margin of bread products.
Stores in his chain, be said, were getting
24 oz. leaves of white bread at that time.
about 34 cents and selling them for 43 cents a lion.
Some other places, he said, may be buying the leaves at 34 cents and selling for 37 cents, allowing only enough margin to cover for labor costs. But they make up for other costs, he said, in what they charge for other items.
The superintendent of a bakery division with another chain said the spread between what his company paid for bread and what it sold it for was about 17 per cent, adding that "bread doesn't come up to the level of needed. It is not a very profitable item."
By the time the grocer accounts for labor, trucking costs and losses of old bread that can't be sold, he said, that margin has been reduced to 10 per cent.
In a comparison of the average prices for
a one pound loaf of white bread for
two pounds, we find that
Department of Agriculture siloed the price that the customer paid for a leaf in the
December 1972 December 1973
Average retail selling price 25 cents 31.9 cents
Retail spread 4.7 cents 5.8 cents
Baker-wholesale spread 13.1 cents 15.9 cents
Milk spread 9 cents 1.3 cents
Farm value 4.6 cents 7.2 cents
All ingredients 1.7 cents 1.7 cents
Other spreads 1.7 cents 1.7 cents
During the same period, the cost of ingredients to the baker went from 7.2 cents a loaf to 10.2 cents and the cost of wheat to the millers from $3.15 a bushel to $4.85.
One grain buyer in Kansas City, use-
looking over the current grain situation,
including prospects of a record domestic
harvest this year and less demand for U.S.
wheat abroad, it said it appeared that there would be plenty of wheat for domestic use. The report also found that
"We're not going to have any dollar loaf of bread," he said.
Which may or may not be reassuring to consumers who have grown accustomed to it?
One grocer said bread prices would probably be going up again, if for no other reason than for the constantly rising costs of labor and manufacturing.
But that rise will be tempered, he said, by competition, which is made all the more keen because of consumer sensitivity about the price of bread.
If the competitor is selling loaves of bread at three for 95 cents or $1.05, he said, the grocer is going to have to stay competitive at about the same price.
"No one likes to be outpriced on a loaf of bread," he said.
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