NEW YORK - Packaged goods companies that have already passed on increased fuel and sugar costs now face rising grain prices.
Wheat and corn prices are heading to possibly their highest level in a decade, owing to drought conditions and demand for ethanol. A pound of flour costs 14 cents, up from 11 cents from last year, said Vince Peterson, a vice president at U.S. Wheat Associates, a trade association.
Prices for some Kellogg cereals will increase about 2% in September, in part due to grain price increases, a spokeswoman said.
Observers expect minimal impact on retail prices, though. Brian Todd, president of the Food Institute, said food makers need to stay competitive and will try to cut costs elsewhere to offset the grains increase.
Todd said that the U.S. Department of Agriculture still only forecasts a 1.5% to 2% increase in bakery and cereal prices this year, in line with recent increases.
"If it's a branded product, to increase it makes the private label or lower-priced product more attractive," Todd said. "They would rather keep their customers loyal."
Meanwhile, Safeway Chairman, President and CEO Steve Burd said in a recent conference call that while company practice is to reflect list price increases in retail prices, those increases are sometimes offset by higher vendor allowances.
