Crop-Killing Drought To Push
Food Inflation Even Higher
Morning ^ | 11-14-2011 | David
on November 14, 2011 3:38:12
PM CST by blam
Drought To Push Food Inflation Even Higher
By David Zeiler, Associate Editor, Money Morning
drought affecting one-third of the lower 48 states has
hurt several key food crops, driving up prices this year
and assuring widespread food inflation well into 2012.
to the National Climatic Data Center, the drought has
caused more than $10 billion in losses to agriculture and
cattle, a number it expects to keep rising as the drought
blame the drought on a La Niña weather pattern
expected to last at least through the winter.
most affected include corn and peanuts. In addition, the
lack of rain dried cattle grazing pastures to dust, which
has translated to higher beef prices.
we are going to see higher prices this Thanksgiving,"
Purdue University agricultural economist Corinne Alexander
told The Atlantic.
American Farm Bureau estimates that a Thanksgiving meal
for 10 will cost 13% more this year than it did last year.
U.S. economy already has inflationary pressure as a result
of the stimulative policies of the U.S. Federal Reserve
pumping it with hundreds of billions of dollars.
interest rates and excess money supply growth are what's
been driving inflation," said Money Morning Global
Investing Strategist Martin Hutchinson. "They raise
commodity prices, which over time feeds into inflation in
drought is pushing food inflation higher than overall
Consumer Price Index (CPI) in September was up 3.9% over
the previous year, while the increase for food alone was
up 4.7%. Over the past five years,world food costs have
in the year, grocery stores were eating most of the price
increases, somewhat insulating U.S. consumers. But in
recent months that's begun to change.
era of grocers holding the line on retail-food cost
increases is basically over," John Anderson, a senior
economist at the Farm Bureau in Washington, told Bloomberg
are going up the most dramatically in the categories of
food most affected by the drought. Beef is up 10.1%, for
pastures drying up over the summer, many ranchers were
forced to sell off cattle before they could reproduce.
While that briefly increased the supply of beef, the
current shortage of cattle - the U.S. herd was at a
38-year low this summer - is impacting prices.
drought has caused the price of hay to skyrocket from $80
a ton to $200 a ton, which, because it's used as forage
for farm animals, has contributed to a 10.2% spike in
expensive corn also has contributed to higher beef prices,
as well as inflation in the pork and poultry industries.
perhaps the hardest hit crop has been peanuts. The U.S.
Department of Agriculture has projected a 13% drop in
peanuts for 2011, which has caused the price for a ton of
runner peanuts (used in peanut butter) to surge from $450
to $1,200 in the past year.
has led to massive price hikes among the major peanut
butter makers. Kraft Foods Inc. (NYSE: KFT) raised the
price for its Planters brand of peanut butter by 40%
earlier this month, The J.M. Smucker Company (NYSE: SJM)
raised the price of Jif by 30%, and ConAgra Foods Inc.
(NYSE: CAG) raised the price of Peter Pan by 20%.
Niña weather pattern responsible for this year's
drought has reformed this fall. La Niña is the name
meteorologists have given to an unusually cool Pacific
Ocean that in turn causes dry conditions over much of the
Southwestern United States.
means drought is likely to continue in the
drought-stricken states of Texas, Oklahoma and New
Mexico," said Mike Halpert, deputy director of the
National Oceanic and Atmospheric Administration's Climate
Prediction Center. "The odds do not favor the
south getting out of drought, at least before next
spring or summer, and even that could be a reach."
Texas, which has by far borne the worst of the drought,
government weather officials fear that the dry
conditions could persist for a decade or longer.
especially bad news for the cattle industry, as it takes
three years to raise cattle to slaughtering size, and the
herds were already severely reduced over the past summer.
A years-long drought will further delay recovery and drive
steep increases in beef prices.
only good news is that experts don't foresee any
food shortages, just food inflation.
food will be available; you're just going to pay a higher
price," Purdue's Alexander said.