Consumer’s wallets are expected to be impacted next year in terms of food inflation as a result of the ongoing drought in the Midwest.  Scott Brown, a University of Missouri agricultural economist, predicts an 8-percent increase in meat, dairy, and poultry prices next year.  “The short term effects will be fairly muted for the remainder of 2012, but we’re going to see food price increases in 2012 and maybe into 2014 because of this drought,” said Brown, research assistant professor at the University of Missouri.

Last month, in its initial forecast for 2013, USDA predicted that consumers may pay 3 percent to 4 percent more for groceries next year above this year’s level.

The drought is dramatically reducing feedstuffs and corn yields will probably suffer a 10 percent or more decrease compared to last year, Brown said.  Corn futures have jumped to $8 per bushel in late July from $5.50 per bushel at the beginning of June.  Soybean meal and hay prices have also reached extremely high levels. “It is sobering to realize that 2013 feed expenses very well could be three times higher than the 1990-2004 average and 70 percent above the 2007-2010 average,” Brown pointed out.

The livestock industry will suffer a good deal of short-term pain as it tries to adjust, Brown commented.  Producers are already slaughtering their existing animal inventories to a level they can afford to feed, and some producers may have to exit the industry.  This shrinking livestock supply will mean less meat in grocery refrigerators in 2013.  “That’s certainly going to raise prices,” Brown said.  He also pointed out that the pork and chicken industries will fare worse because there are not many substitutes for corn and soybeans as feed ingredients.

USDA had added nearly 220 counties in a dozen drought-stricken states to the government’s list of natural disaster areas.  Nearly half of the nation’s corn crop was rated poor to very poor, according to USDA.  About 37 percent of the U.S. soybean crop also rates in that category, while nearly three-quarters of U.S. cattle acreage is in drought-affected areas, according to  USDA.

The impact on producers and consumers will become worse if the drought continues into 2013, Brown said.  “I don’t know what to think about what will happen then to the domestic livestock industries,” Brown said.

 

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