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Drought will increase food prices in 2013, USDA says

Corn wilts in a field in Kansas. The drought that covers about 60 percent of the U.S. is the largest since the 1930s and 1950s.

Associated Press

Corn wilts in a field in Kansas. The drought that covers about 60 percent of the U.S. is the largest since the 1930s and 1950s.

MINNEAPOLIS

The drought gripping more than half the country is a major reason why consumers can expect to pay 3 percent to 4 percent more for groceries next year, the U.S. Department of Agriculture said Wednesday.

Milk, eggs, beef, poultry and pork prices will all be affected because the drought has pushed up prices for feed, and that will eventually translate into higher prices for steaks, hamburger, pork chops and chicken. The good news for cost-conscious consumers is that prices for fruits and vegetables, as well as processed foods, aren't affected as much by the drought.

Exactly how much more people might pay for a pound of hamburger, for example, isn't known because those prices are affected by lots of factors, including how much of the increase a given supermarket might pass along to the consumer. But beef prices as a whole are expected to see the biggest jump at 4 percent to 5 percent, according to the USDA.

"In 2013 as a result of this drought we are looking at above-normal food price inflation. … Consumers are certainly going to feel it," USDA economist Richard Volpe said.

Normal grocery price inflation is about 2.8 percent a year, Volpe said, so even a 3 percent increase is slightly higher than usual. The USDA kept its projected food price increase for 2012 steady at 2.5 percent to 3.5 percent, saying average retail food prices were flat for the first half of 2012, thanks to unusually low fruit and vegetable prices as well as lower prices for milk and pork.

The new forecasts are the agency's first food price projections to factor in the drought, though experts have been warning for a few weeks that prices will rise. As fields dry out and crops wither across much of the country's midsection, prices for corn, soybeans and other commodities have soared in anticipation of tight supplies. That means farmers and ranchers will have to pay more to feed their livestock, and those costs eventually get passed on to consumers. Food prices typically climb about 1 percent for every 50 percent increase in average corn prices, according to agricultural economists.

The drought now covers about 60 percent of the continental United States, the largest area since the epic droughts of the 1930s and 1950s.

"It's a disaster," said Rick Tolman, CEO of the National Corn Growers Association, who noted that farmers started out the season anticipating a record 14 billion bushel corn crop. The drought is expected to cut production by roughly 3 billion bushels. "We would have had adequate supplies, prices would have gone down. Instead, we have the drought," he said.

Poultry prices will be the first to rise because chickens and turkeys need only a few months to grow to market size, Volpe said. Beef and pork take longer, and the agency actually revised its beef price projection for 2012 downward because producers are sending more cattle to the market as they reduce their herds in response to the drought, he said.

Meat and poultry prices will be more affected than processed food prices because feed prices represent the biggest part of their cost of production. Processed food prices are less affected because corn and other ingredients typically make up just a fraction of their production costs compared with expenses such as transportation and marketing.

The drought is creating multiple problems for dairy farmers that consumers will eventually feel, said Ed Jesse, an emeritus professor of agricultural economics at the University of Wisconsin in Madison.

Farmers have begun culling their herds, which will mean less milk down the line. Also, cows give less milk in the heat, and the milk they do produce is lower in proteins and butterfat, Jesse said. That means cheese and butter prices are going up because it takes more milk to produce the same amount.

Jesse predicted that milk prices for consumers will rise by 10 percent or more.

*Expected rise in prices in 2013, according to the USDA

Beef

4-5%*

Dairy

3.5-4.5%

Poultry/

eggs

3-4%

Pork

2.5-3.5%

Drought will increase food prices in 2013, USDA says 07/25/12 [Last modified: Wednesday, July 25, 2012 11:34pm]
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