Drought to cause price increases

Lincoln, Neb. – The U.S. National Drought Mitigation Center (NDMC) has released its latest statistics on the intense drought that has gripped the U.S.

On its latest map, the NDMC put 53.44 per cent of the U.S. and Puerto Rico in moderate drought or worse, up from 53.17 per cent the week before; 38.11 per cent in severe drought or worse, compared with 35.32 a week earlier; 17.2 per cent in extreme drought or worse, compared with 11.32 per cent the week before; and 1.99 per cent in exceptional drought, up from .83 per cent the preceding week.

Food prices and consumers

The NDMC reports that an increase in the farm price of corn has already occurred and additional increases will depend on the extent of the drought. The CBC.ca reports that the forecast for the week ahead does call for scattered showers and thunderstorms to the Great Plains and Midwest core drought area.

If the drought continues, it will affect the price of other crops, such as soybeans, and other inputs in the food supply such as animal feed. The NDMC says that depending on how the drought turns out, consumers could start to see price increases on supermarket shelves by the fall.

So far this is what the NDMC knows:

• There are not yet any specific estimates of how the drought will affect food prices. This will be estimated once the NDMC knows the severity of the drought and, in turn, how much of the corn crop is destroyed.
• Industry and consumers will likely see impacts within two months for beef, pork, poultry and dairy (especially fluid milk).  The full effects of the increase in corn prices for packaged and processed foods (cereal, corn flour, etc.) will likely take 10-12 months to move through to retail food prices.

Photo from ABCLocal.go.com.

• The drought has the potential to increase retail prices for beef, pork, poultry, and dairy products first and foremost – later this year and into 2013.  But in the short term, drought conditions may lead to herd culling in response to higher feed costs, and short term increases in meat supply. This could decrease prices for some meat products in the short-term. That trend would reverse after time after product supplies shrink.
• Historically, if the farm price of corn increases 50 per cent, then retail food prices as measured by the Consumer Price Index (CPI) increase by 0.5 to 1 per cent. More generally, as an overall commodity price index increases, about 14 to 15 per cent of that increase is passed on to retail prices for products that use that commodity as an ingredient.
• Sweet corn, eaten by humans, is distinct from field corn (used for feed) and is not being heavily affected by adverse weather at this point.

In Canada

North of the U.S. border Canadians are experiencing drought effects as well. A Canadian Press story reports that the drought has affected farmers across Ontario and throughout Eastern Canada. The Western provinces haven’t been hit as hard and are enjoying the higher grain prices.

The federal New Democrats are warning that the price of food is likely to spike as these farmers have fewer crops to harvest.

A spokesperson for Agriculture Minister Gerry Ritz says there are programs in place to help farmers in these situations, to help mitigate and manage the financial impact of weather-related events. He adds that it’s up to the provinces to ask Ottawa for help through a federal-provincial financial assistance program.