Drought, Corn and Food Prices

August 7th, 2012 | Simcha Weinstein | Comments Off on Drought, Corn and Food Prices

The devastating drought that we’ve seen this summer (particularly in the Midwest) has certainly stirred the headlines – with some reports claiming we’ll see a dramatic increase in food prices, while other reports claiming just a small uptick. My guess is that more and more shoppers will be entering your store concerned, and perhaps fearful, about rising food prices, and looking to you for some answers, or at the very least, a little bit of wisdom and comfort on the issue. While this article is not intended to be a proclamation on what exactly will happen, there are some pretty solid indicators we can look at that can help you as you have these conversations with your customers. To that end, here are a few key points to keep in mind as you talk with your customers:

– The crop most affected by the drought is corn. Soybeans will also be affected, but because corn matures earlier, we’re still waiting to see how the drought affects the beans.

– The big concern, of course, is how will food prices be affected? There are a few considerations as we examine this. In general, the Agriculture Department expects that grocery prices will go up about 3-4 percent next year – just slightly higher than a normal yearly increase. The USDA says beef prices are expected to jump 4 to 5 percent, making it among the biggest price hikes for food. Dairy product prices are expected to climb 3.5 to 4.5 percent, poultry and egg prices up by 3 to 4 percent, and pork prices up by 2.5 to 3.5 percent. The USDA projects an overall 2 to 3 percent price increase for fruits and vegetables next year. That is in line with this year’s increase.

– The basic sweet corn that you carry in your produce department will barely be affected. Even though it’s been dry, non-feed corn is irrigated. Feed corn, on the other hand, is not irrigated and will incur the most damage from the heat and drought.

– As has been the case with droughts in previous years, products other than meat products see very little increase in their price. However, with meat it’s a much different story. This is particularly true with poultry as so much of their diet consists of corn. The same will be true for hogs and cattle raised on grain.

– Eggs and milk will also be affected by the drought. Milk will probably go up slightly, but not as much as beef or pork. Eggs will also go up in price, because you’re converting corn through chickens at a very rapid pace, and it’s their primary feed ingredient.

– Many conventionally grown packaged foods (and even foods that are called natural) contain corn – most of which is not irrigated, meaning it was affected by the drought. Although 80-90 percent of conventionally raised packaged foods contain corn, it’s often such a small percentage of the ingredients in the product, that even a significant increase in the price of corn, will only add pennies to the cost of the packaged product.

In general, most experts are claiming only a modest price increase in food as a result of this summer’s drought, and it won’t really kick in for another 2 months. Let’s hope the experts are right.