USDA: Food prices up in 2013

Drought  to affect meat, dairy prices

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 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 for cost-conscious consumers is that prices for fruits, vegetables and processed foods aren’t affected as much by the drought.

“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.

Exactly how much more people might pay for a pound of hamburger, for example, isn’t known because those prices are affected by many 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.

Dairy product 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.

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 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 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.

Processed foods aren’t affected as much because feed costs don’t account for as much of their price tag. And fruits and vegetables aren’t expected to be any more costly because they are irrigated even in normal weather. 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.

USDA economists were aware of the drought a month ago when they did their last projections but didn’t know how bad it would get, Volpe said.

“The USDA was forecasting a record year for the corn crop until this drought materialized,” Volpe said.

The drought now covers around 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 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.

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.

Food companies are already reacting, even turning abroad in some cases to blunt the impact of higher corn prices and tight supplies. Smithfield Foods Inc., the world’s largest pork producer, has bought corn from Brazil, spokeswoman Keira Lombardo confirmed.

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-Madison.

Farmers have begun culling their herds, which will mean less milk down the line. Also, cows give less milk in that 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, and he expects those prices to stay high into next year until herds start to recover.