Drought may lead to food inflation
The drought that has affected much of the country, particularly the Midwest, may send the cost of corn soaring, which will lead to higher food costs for everything from milk to beef and pork.
"Farmers are going to have higher feed prices. We're definitely going to see food inflation coming into the equation," said Phil Flynn, a veteran commodities trader for the PFG Best brokerage in Chicago. "I think we're at the point of bigger problems. This was one of the most critical weeks, and we didn't get the rain that we needed."
Big users of grains, namely ranchers who depend on corn as a feedstock for their animals, are taking the first hit.
"This is going to be a beef issue as well as a pork and poultry issue. We're all sitting here with short breath watching the soybean and corn crops develop this year," said Michael Miller, senior vice president of global research for the Denver-based National Cattlemen's Beef Association.
This year's corn crop of 96.4 million acres was reported by the USDA to be the largest crop since 1937. The crop led cattlemen to anticipate $5 a bushel corn, but the crop was selling for $7.50 last week. Miller said that such a price increase can add as much as $75 to $80 per head of cattle in production costs, which leads to a 6% increase for consumers.
The USDA, which had projected a record harvest of 14.79 billion bushels, now says about 60 percent of the corn grown in the United States faces moderate to extreme drought conditions.
Source: Ft. Worth Star-Telegram, McClatchy Newspapers