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 USDA said, reports Associated Press/The Clarion-Ledger.
Milk, eggs, beef, poultry and pork prices will all be affected because the drought has pushed up prices for feed, and that will translate into higher prices for steaks, hamburger, pork chops and chicken. The good news is that prices for fruits and vegetables, as well as processed foods, aren't affected as much by the drought. The USDA is projecting an overall 2 percent to 3 percent increase for all fruits and vegetables next year, the same as it expects this year. 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. Food companies are already reacting, even turning abroad in some cases to blunt the impact of higher corn prices and tight supplies.
According to the USDA, beef prices will see the biggest jump at 4 percent to 5 percent, Dairy prices are forecast to climb 3.5 percent to 4.5 percent; poultry and egg prices are projected to rise 3 percent to 4 percent; and pork prices are expected to rise 2.5 percent to 3.5 percent in 2013, the agency said.
"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.
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 around 60 percent of the continental U.S., the largest area since the epic droughts of the 1930s and 1950s.
"This drought was a surprise for everybody," Volpe said. "The USDA was forecasting a record year for the corn crop until this drought materialized. Now we're not going to get that.""It's a disaster," said Rick Tolman, CEO of the National Corn Growers Association, who noted 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.