Like the weather, economic forecasts are tough to pinpoint, but the general consensus seems to be that the baking industry will continue to see small sales gains. After a dismal 2009, 2010 held steady–no great gains, no great losses.

Experts anticipate more of the same for 2011, with some segments of the marketplace looking up, but trouble for the baking industry could be on the horizon. Fears of a double-dip recession eased after a tax deal was brokered at the end of December. Kiplinger expects the GDP (gross domestic product) to grow by about 3.5 percent, better than the 2.8 percent growth in 2010, but still low for a period of recovery. Goldman Sachs concurs, estimating a 3.4 percent rise in GDP in 2011, followed by 3.8 percent growth in 2012.

On the consumer side, retailers are coming off the best holiday spending season since the recession began, which may indicate consumers feel a little more comfortable with their personal economic situations.

This sounds good news for the baking industry, but some caution it is not. “I think you see that more in durable goods than you do on the food side,” says Kevin McFadden, bakery director, Schnuck Markets, St. Louis. “I don’t think you’re seeing it bust loose on food just yet. People are taking a little bit of a risk and buying the durable goods, but on the food side, we’re not seeing the sales bounce back yet.”

Some of this hesitation can be attributed to the still-high unemployment rate, currently hovering at 9.4 percent. Kiplinger expects about 2.5 million new jobs in 2011 with unemployment declining to less than 9 percent; however, about 8.5 million jobs were lost in 2008 and 2009 with only about 1 million having been restored so far. In order for unemployment numbers to recover, GDP growth will have to continue at 3.5 percent in 2012. With the jobs market still so uncertain, consumers may be willing to splurge occasionally but unwilling to increase their weekly expenditures on food.

Troubles loom

Depending on your bakery’s location, your state’s fiscal situation also could affect your bottom line as well as your customers’. Several states find themselves on the verge of bankruptcy or insolvency, and in the case of Illinois, residents’ state income tax will rise 66 percent in 2011. This translates to a larger tax hit to customers’ paychecks, more expenditures for bakeries and less money available for spending.

Customers may still be willing to splurge occasionally, but the quality of the product had better match the price you’re charging.

For bakers, commodities are the looming storm. “Sugar is going to remain volatile, soy is going to remain volatile and so are wheat prices and cocoa,” McFadden says. “All of them are going to be major contributors to instability. It’s going to be an interesting year. It could be a roller coaster ride for awhile.”

The next six months are likely to be very erratic for wheat, according to Scott Custard, vice president of Moving Parts, Omaha, Neb., a commodities consultancy firm. “For both corn and soybeans, supplies are so tight that we don’t have a lot of room for error. The wheat balance sheet looks a lot healthier than either beans or corn, but having said that, wheat doesn’t trade in a vacuum. It takes a lot of its cues from corn. And corn is king.”

Custard adds that the current price of wheat is hard to justify, even with the Russian drought this summer and this winter’s flooding in Australia. The upside is that the supply in the United States is adequate, unlike the situation in the summer of 2008 when wheat prices spiked sky high. In 2008, the world had three years of low wheat crop yields, which increased U.S. wheat exports, and then the United States’ 2007 harvest was subpar. When low supply was coupled with a rise in crude oil prices, the stage was set for the perfect storm of low supply and high demand.

“I think what’s different today is that we’re not in such a tight spot for global supplies. We’re still trying to get our hands around how much is out there and how much is going to be needed from the United States to help feed the world market. It’s kind of tough to do that with the prices we’re at today,” Custard says. “I don’t anticipate those types of horrific moves we saw in ’08, but I will say I think we’ll be quite volatile. Wheat has plenty of its own things to worry about, but at the end of the day, it’s still going to be driven much of the time by the corn and soy markets. We don’t have any room for error. There is a way out of the forest, we just can’t take any wrong turns.”

Many bakers are predicting customers’ purse strings will loosen a bit this year, but sales will remain below what they saw before the recession.

Sugar has already seen high prices during the past several months. The floods in Australia along with droughts in Brazil, the world’s largest sugar producer, have led to shortages in the international sugar supply. In addition, freezing weather in Florida damaged the U.S. cane crop. Sugar hit $752.70 on the New York Stock Exchange in January, compared to $383.70 at the end of June 2008, and prices are at a 30-year high.

Recent political strife in the Ivory Coast, which produces more than 40 percent of the world’s cocoa, has caused the price of cocoa to spike. Prices had remained steady during much of the upheaval at the end of last year. The situation had raised concerns that the cocoa yield would be low; however, U.S. cocoa suppliers expect some of their largest deliveries from the region.

Gas prices also are worth keeping an eye on. Kiplinger expects crude oil prices to remain in the $85 to $95 range, but a great deal of speculative trading is keeping the price higher than market supply and demand. Prices at the pump will edge upwards during the next several months.

Sunny side to sales?

With indications that ingredient costs and gas prices are on the rise, what do bakers expect in 2011? Many predict sales to remain flat.

“However, I do see people’s spending habits increasing as they become more accustomed to our country’s economic situation. The scare factor has worn off, and people are beginning to loosen up,” says Michael Manni Jr., director of finance and sales, LaSalle Bakery, Providence, R.I.

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