Tags: drought | crop | food | prices

Experts: Crippling Drought Will Push Food Prices Higher

Wednesday, 18 July 2012 01:47 PM

A relentless drought searing much of the United States is obliterating crop production and will send food prices rising, experts warn.

The U.S. Department of Agriculture has declared more than 1,000 counties in 26 states as natural disasters thanks to the drought, the worst in more than 50 years.

Roughly 55 percent of the continental United States is suffering from moderate drought or worse, the largest percentage since 1956, according to the National Climatic Data Center, The Washington Post reported.

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The forecast for the country's food prices doesn't look good.

“The drought could get a lot worse before it gets better,” said Joe Glauber, chief economist at the Agriculture Department, the Post reported.

The government has cut its estimates for crop yields this year, which will send food prices climbing.

While agriculture doesn't drive too much of the country's gross domestic product, higher food prices will strike at a time when many consumers are suffering from joblessness, tight family purse strings and unrelenting uncertainty in general.

"Prices are going to go up," said Justin Gardner, assistant professor of agribusiness at Middle Tennessee State University, according to the Christian Science Monitor. "The only question is when."

The U.S. Department of Agriculture has slashed its crop projections for corn by some 12 percent, sending the price of corn soaring 34 percent recently.

Corn serves as a main ingredient to many foods, from breakfast cereals to cattle feed, meaning beef, pork and poultry prices could rise as well while hot and dry weather dries up the nation's heartland.

“If you like bacon/pork you should buy it now, because by the fall you are going to be stunned at what it will cost,” Jeff Born, a finance professor and director of the executive MBA program at Northeastern University in Boston, told the Christian Science Monitor.

U.S. Agriculture Secretary Tom Vilsack said the worsening Midwest drought will result in sharply higher crop prices but maintained there is no need yet to seek a reduction in corn-based ethanol production.

Vilsack urged Congress to work with the Obama administration on ways to improve aid to farmers struggling with a crop that will be sharply reduced by searing heat and a lack of rain.

Lower crop yields mean higher prices, other experts added.

"You would see it first and heaviest for beef, pork, poultry and dairy," Richard Volpe, an economist with the USDA's Economic Research Service, told CNN.

Still, don't track the prices of rising corn in the news and assume food at the grocery store will rise in line.

It won't, Volpe added.

"We understand historically, if the price of field corn goes up by 50 percent, which is a huge jump, we expect retail food in general to go up by about 1 percent," he said.

And while the government has cut its forecast for crop yields, some experts say harsh weather patterns will likely mean yields are set to decline even further.

"The ongoing drought and Corn Belt disaster is likely to further drive down yields in the United States for 2012, translating to higher costs for consumers," Alex Sosnowski, an Expert Senior Meteorologist at AccuWeather.com, wrote in a report on the forecaster's website.

"In June, the USDA was projecting a record 166 bushels of corn per acre to be harvest this fall. That projected yield has been pushed down to 146 bushels per acre as of mid-July," Sosnowski added.

"AccuWeather.com agricultural meteorologists expect this figure is likely to go lower and are projecting the yield to be around 138 bushels per acre."

Not only do falling yields mean higher food prices, especially when it comes the corn crop, fuel prices may suffer as well.

"Fuel prices can also be impacted to a lesser degree, since gasoline in the U.S. contains between 5 and 10 percent ethanol. Ethanol is distilled from corn, sugar cane and other silage," Sosnowski wrote.

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Wednesday, 18 July 2012 01:47 PM
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