Delaware online
07-06-07
Beer budget blown? Blame biofuel
Ethanol production main reason behind price hike
By REBEKAH ALLEN, The News Journal
A nationwide frenzy for corn has displaced enough of the nation's wheat and
barley to raise the prices of three American staples: milk, pizza and beer.
Blame biofuel.
To curb the country's dependence on foreign oil, President Bush in his "State of
the Union" speech called for an expansion in the production of ethanol and other
biofuels, and visited DuPont Co. in January to outline a more diverse energy
strategy.
Farmers responded in acreage. A U.S. Department of Agriculture survey last
week found farmers had planted 2.4 million more acres of corn than they had
predicted this year. More corn means less wheat and barley. And, using corn for
fuel puts pressure on the market for feed corn, making it more costly to feed
cows.
All that is trickling down to popular food commodities like cheese.
Akram Rayan, manager of Pat's Pizza on East Basin Road near New Castle,
said he is paying 80 to 90 cents more per pound for cheese this year than he did
last year.
On Thursday, block cheddar, which is a benchmark for other cheeses, was
quoted at $1.94 per pound by the Chicago Mercantile Exchange -- a 61 cent rise
from the end of 2006.
Rayan, who uses about 66,000 pounds of cheese per year, marginally raised his
prices this year. His special of two medium pizzas used to go for $10.95 -- it now
goes for $10.99. He said he has only been able to raise prices by pennies here
and there, because he's afraid a larger increase would deter customers.
But those pennies aren't compensating for the thousands of dollars lost, he said.
"But what can you do? You cannot substitute cheese for something else," Rayan
said. "You cannot raise prices the way you want it. You have competition around
you. If I sold a large pizza for $10 and someone else is going to sell it for $8.50,
who are you going to go to?"
Mary Haffenberg, Chicago Mercantile Exchange spokeswoman, said cheese
costs more because milk costs more.
"First it was milk, now it's cheese, next it will be pizza places raising prices,"
Haffenberg said.
Bruce Babcock, director of the Center for Agricultural and Rural
Development at Iowa State University, said milk prices are rising because
there is "worldwide contraction of supplies at the same time demand is growing."
Milk supply has declined as producers curtail the expansion of cattle herds
because of the lack of milk profit in 2004 and 2005, which can be attributed to
increasing feed costs.
At the same time, the world's demand for dairy products has grown as China and
other Eastern countries have begun to westernize their appetites, Babcock said.
Relief in sight
Pizza Hut spokesman Tim McIntyre said the company has been pressured to
raise the cost of a cheese pizza to the same price of a single-topping pizza to
counter rising costs.
Domino's, which sells more than 400 million pizzas a year, has managed to avoid
raising prices so far, but spokesperson Lynn Liddle says an increase could be in
their future.
"At just about a third of the cost of a pizza, cheese is certainly a commodity we
watch carefully," Liddle said in a statement. "We have seen cheese at various
highs and lows, and have managed to work around these peaks and valleys for
the most part."
While cheese and milk prices are not likely to drop to what they were a year ago,
Babcock said, they are projected to drop in the next few months to a year.
Milk is sold at about $20 per 100 pounds, or approximately 11.5 gallons, on the
Chicago Mercantile Exchange, up from about $11 dollars a year ago. Babcock
said the price should flatten out at about $15 or $16, and cheese will likely follow.
But, he said, the rising cost of feed for cows will keep prices in that higher range.
On Thursday, a gallon of milk at the Pike Creek Acme cost $3.99. Acme dairy
employee Adam Campbell said the price was about 40 cents cheaper a year
ago.
Less barley adds to price
Beer is suffering a similar fate as the costs of barley, hops, glass and aluminum
rise.
Dogfish Head Brewery, a local beer producer, raised its prices twice in two years,
after going 10 years without an increase, said brewmaster Andy Tveekrem.
Two years ago, Dogfish Head raised its bottle beer price by 8 percent to 10
percent, and this past year the company raised the price of draught beer by 15
percent.
He said the price of barley and hops have jumped 6 percent to 15 percent, and
glass bottles have jumped more than 11 percent in the past three years.
"Barley right now is kind of feeling a squeeze from people who want to plant corn
for biofuel," Tveekrem said. "Where there used to be a barley surplus and
brewers felt safe, now the increase in biofuels has been decreasing the acreage
that farmers want to plant."
Larger breweries say they are less likely to be affected because they don't buy
barley from open or spot markets.
Coors Brewing Co. has raised its prices less than 2 percent since 2006,
spokeswoman Aimee Valdez said.
Tveekrem said it is unclear whether Dogfish Head will be raising prices again
soon.
"At some point we'll have to look at costs and raise prices again," he said. "But
we tend to try not to. If we're charging $10 for a six-pack of beer, people are not
going to buy it."