Inflation is hitting one of Iowa’s cultural icons: gas station pizza.
Darren Rebelez, CEO of Casey’s General Stores, told investors last week that the company has raised prices for ready meals three times since October, most recently in early May. And the rising cost of cheese is being blamed the most.
The company didn’t disclose how much it raised prices over the past eight months. But his new store on Ingersoll Avenue sold a single piece for $2.99 last week. That’s more than the $2.56 last found by tracking website fastfoodmenuprices.com.
Rebelez told analysts that he thinks consumers are willing to pay slightly more at Casey’s than they did earlier in the year, with inflationary pressures pushing up the prices of many groceries.
“Nobody really knows what the right price for a pizza should be,” he said.
With approximately 2,500 gas stations in 16 states, Ankeny-based Casey’s is consistently among the top five pizza chains in the country.
The pizza price hike comes after the company’s profit margin for its ready meals, which also includes donuts, hamburgers and breakfast sandwiches, fell for three straight quarters. Casey’s reported a 56.9% margin in the segment from February through April, up from 61% in early summer 2021.
But Rebelez and Chief Financial Officer Steve Bramlage blamed cheese, a key component of pizza. The company said the price it pays for the cheese it buys in boxcar quantities to stack on its pies is up about 30% year over year, resulting in a $3.5 million drop in profit led in the last quarter.
The increased cheese price accounted for about a third of the decline in profit margins for the company’s ready meals division, it said.
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Bramlage told investors the company is watching the cheese futures markets “every day like a hawk” and is waiting and hoping that prices will fall.
“Finding really meaningful futures prices has proven difficult over the last six months,” he said.
Expensive grain means expensive milk. Expensive milk means expensive cheese.
The US cheese market has been a “roller coaster ride” for the past two years, said Dave Kurzawski, dairy broker at StoneX Financial.
Cheddar blocks fell to nearly $1 a pound early in the pandemic in spring 2020 as cheesemakers lost many of their restaurant customers. But as US prices fell below those of major producers in Europe and Oceania, American factories found international buyers.
The US government then began buying more cheese and providing COVID-19 relief payments to dairy farmers. Grocery stores shopped more aggressively as customers ate out more often. By June 2020, buyers on the Chicago Mercantile Exchange were paying a record $2.81 a pound for cheddar.
The market returned to normal in the first half of last year. But rising corn and soybean prices have put pressure on dairy farmers who rely on the commodities for feed. They sent their least productive cows to be slaughtered.
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“Any animal that looked at her from the side was culled,” Kurzawski said.
From May 2021 to January, the US dairy herd shrank by 140,000. Phil Plour, Ever.Ag’s head of market intelligence, said US dairy production was down year-over-year in seven of the last eight months.
Meanwhile, demand for dairy products remained stable. Plour said grocery stores have been heavily promoting cheese because the product’s price hasn’t risen as much as the price of other goods like meat. Eventually prices went up.
“You can’t just add another layer,” he said of the dairy farmers. “You depend on cows.”
The cost of Class III milk — the kind used to make cheese — hit $25.21 per 100 pounds in May, up 33% from the price last year. The price of cheese also rose steadily.
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The Russian invasion of Ukraine in February put further pressure on the market. Grain exports from Ukraine fell, which kept feed prices high. And a rise in gasoline prices increased the cost of transporting goods and operating agricultural equipment.
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All in all, cheddar was trading at $2.34 a pound in April versus $1.91 a pound in January.
Lino Saputo, CEO of Canadian cheese giant Saputo, told investors June 9 that the company’s most recent fiscal year was “disappointing.” The company, maker of brands such as Frigo, Stella and Treasure Cave, reported earnings of $274 million for the year ended March, up from $626 million a year earlier.
Despite producing in five countries, the company blamed the US market for its troubles. Lino Saputo told investors that at the commodity level, cheese and milk prices used to be around a nickel per pound. But milk has been a lot more expensive lately. Saputo reported that milk traded for 41 cents more per pound than cheese in January and February.
Lino Saputo said executives will renegotiate their contracts with customers and raise cheese prices in July. He added that the company, which operates 29 US factories, will try to raise cheese prices in anticipation of inflation before it hits it.
“We played defense,” he told investors. “Now we play offensive.”
Kurzawski said the price should fall this summer. US dairy farmers have added 35,000 cows since January. The price of cheddar fell to $2.33 a pound in May, suggesting that demand has fallen.
“That doesn’t mean Casey’s isn’t paying higher than normal prices,” Kurzawski said. “But it should be better than your previous quarter.”
Dairy farmers in Iowa have an advantage — to a degree
In some ways, Iowa dairy farmers are better positioned than most to deal with rising feed prices. Unlike Western producers, they grow their own corn and soybeans.
They still deal with the input challenges, such as B. the increased cost of fertilizers. But they don’t have to pay for the delivery of the goods – an expense that increases with gas prices.
“We’re certainly more isolated than someone who buys their own feed,” said Larry Shover, president of the Iowa State Dairy Association and operator of a 100-cow farm in Delhi.
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However, farmers face other increased costs. The feed must continue to be supplemented with hay and protein sources such as rapeseed meal. Vitamins are more expensive than they used to be. Suppliers are struggling to produce enough ear tags for cows and alkaline cleaners for the stainless steel pipes that carry the milk to the storage tanks.
Kevin Knapp, who runs a 170-cow farm in Larchwood, said he also increased hourly wages by $4 this year for his three employees. Fearing further price increases, he hopes to be able to buy enough hay this summer to feed his cows well into spring. He said he signed a canola meal deal last summer that runs through the fall.
“It’s going to be a whole new world,” he said of trying to negotiate a new contract. “Then we will see even higher feed costs.”
Clayton County’s Gary Kregel said he’s raised his bar on how profitable cows need to be to survive. He pulls faster a cow whose milk has too low a proportion of butterfat and protein. He now has 350 pieces, down from his usual 380.
Unlike a grain farmer, Kregel cannot store his goods until prices improve. Every two days he sends fresh milk to the buyers.
“There’s no need to keep rim cows,” he said.
Fancy cheese prices aren’t like pizza cheese prices at gas stations
Despite being hit by the price hikes, Casey’s, Des Moines’ best-known high-end cheese retailer, hasn’t increased prices.
CJ Bienert, owner of the Cheese Shop and Cheese Bar on 42nd Street, buys about half of his produce directly from farmers and the other half from European importers. He said prices have remained surprisingly stable this year.
Bienert said his suppliers enjoy greater profit margins than bulk manufacturers who supply chains like Casey’s. He believes that as milk prices rise, his suppliers consume more of those costs – and make less profit.
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“Now our $15 sandwich (with cheese) from the grill (at the Cheese Bar) is a deal,” Bienart said. “We were laughed at once. But we haven’t taken a ton of price increases because we’ve already paid quite a bit.”
Still, at least a small hike seems likely in his future.
One of Bienert’s southeast Iowa suppliers, Milton Creamery, will increase prices by 6% in July. The company is best known for Prairie Breeze, a sweet-tasting white cheddar that’s aged for nine months.
Junior Musser, who owns the company with his father, said they have only increased prices three times in 11 years. He said they’re trying to be consistent to reassure high-end buyers. Chic restaurants don’t want surprises that force them to print new menus.
In addition to milk, Musser said, Milton Creamery pays more for ingredients and cleaning chemicals.
“We just hope that we can weather this storm, that this price increase can be enough,” Musser said.
Mike Bandstra, who owns Frisian Farms Cheese House in Leighton, said he increased the price of his quark by 10% at the end of April. In addition to other inputs, wax coating costs for his specialty Gouda have increased, he said.
Bandstra said he doesn’t plan to raise prices any further. He worries that too many of his customers in Chicago, Iowa and Kansas City will stop buying if he tries to pass on the costs.
“I feel bad if I have to raise prices, you know?” he said.
Tyler Jett covers jobs and the economy for the Des Moines Register. You can reach him at [email protected], 515-284-8215 or on Twitter at @LetsJett.
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