Milling & Baking News - October 21, 2008 - (Page 1)

THE NEWS WEEKLY OF GRAIN-BASED FOODS OCTOBER 21, 2008 / FEATURE Suppliers, customers grapple with stressful dynamics as prices fall Sweet solutions Alternative sweeteners will fit formulations for low-calorie, low-sugar or natural products. Story on Page 25 LATE NEWS C.P.I. for baked foods and cereals rebounds WASHINGTON - The Consumer Price Index for baked foods and cereal products in September rose 0.3% from August, according to the Bureau of Labor Statistics of the U.S. Department of Labor. The gain followed the first index decline since September 2007. Last month continued an extended period of fairly wide moves in the indices of ranking products. In July, 15 of 18 categories within the index advanced, but 11 of the 18 categories fell during August. In the most recent month, the indices again took a turn, with 14 of the 18 categories rising. The September index for Cereals and Bakery Products before Continued on Page 8 KANSAS CITY - Are baking ingredient prices a bargain or expensive? While purchasing executives always grapple with this impossible question, dynamics in the current marketplace make analyzing such an inquiry more difficult perhaps than ever. Additionally, the prolonged period in which highly volatile market conditions have prevailed has created stresses within baking companies and between baking companies and their suppliers. In interviews with several baking ingredient suppliers, a number of extraordinary market conditions were identified. Standing out is how across a strikingly wide span of baking ingredients, prices have fallen precipitously in recent weeks and months. From highs established earlier in the year, prices have dropped 54% to 71% for bakery flour with steep declines in many other ingredients as well. Whey powder prices have plunged 78% from recent highs and soybean oil prices have dropped 47%. Asked whether the weaker prices have been a relief following the dramatic escalation of prices in 2007 and early 2008, a purchasing executive at a major wholesale baking company said the opposite was the case. "It has never been tougher," he said. "And we're struggling trying to figure out what to do next." One ingredient supplier said the effects on customers have been pronounced. "It extends from flour to shortening and throughout the supply chain," he said. "Prices went way up and they fell further and faster than anyone imagined." The problem created by the extraordinary volatility is that ingredient contracts have been booked at more widely Continued on Page 12 Archway Cookies files for Chapter 11 BATTLE CREEK, MICH. - Archway Cookies, L.L.C. on Oct. 6 filed for Chapter 11 bankruptcy in the U.S. District Court in Delaware, citing "increased costs, extensive competition, and allegations concerning accounting irregularities." The announcement followed the company's abrupt closing of its headquarters in Battle Creek and baking facility in Ashland, Ohio, on Oct. 3. The move affected 160 workers at the two locations. The status of Archway's remaining facility - a manufacturing plant in Kitchener, Ont. - remains up in the air. The closings appear to bring to a close several difficult years for Archway, which was founded in Battle Creek in 1936 and operated a bakery there until 1993. In 2006, the company closed its 183,000-square-foot Mother's Cookies Oakland (Calif.) bakery and distribution center and sold its 65,000-square-foot facility in Plant City, Fla., to Toufayan Bakery Inc., a pita bread maker. In October 2003, Italy-based Parmalat Finanziaria S.p.A., which acquired Archway from Specialty Foods Corp. in Continued on Page 10

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Milling & Baking News - October 21, 2008