The Corn Belt’s Sweeping Drought Could Result In Steeper Grocery Store Prices

Due to what many experts are calling one of the worst droughts this country has seen in decades, consumers could start seeing the effects of the Midwest’s damaged grain crops reflected in their grocery store receipts. But don’t stockpile corn flakes — it’s more likely prices will go up for meat and dairy products.

According to the U.S. Department of Agriculture, 40% of the corn planted in America is in poor or very poor condition, in stark contrast to 11% at this time last year, notes CNNMoney. Those kinds of conditions present the potential for food inflation, say experts, as the prices for feed go up for the livestock we eat.

There’s been a 50% spike in the prices of corn futures over the last month. Usually for every 50% jump in those prices, food prices go up around 1% overall. But some food categories are harder hit than others, says Richard Volpe, an economist for the Economic Research Service of the U.S. Department of Agriculture.

Beef, pork and poultry prices will likely jump the most, as corn is what is mostly used to feed cattle, pigs and chicken. Before the drought hit, analysts thought retail beef prices would have a minor uptick of 4% to 6%, but now everything is changing as the drought lingers. Those prices could instead rice about 10%, with a jump from an average of $4.35 per pound in 2011 to an average of almost $4.80 per pound this year.

Consumers shouldn’t worry about an overnight price hike, however, as the trickle down effect after crops are harvested later this year will prompt changes in prices at the end of 2012 and into early 2013.

“We’re in one of those situations where everyone is watching the weather and corn prices from the edge of their seats,” Michael Miller, senior vice president of global research for the National Cattlemen’s Beef Association told CNNMoney. “This is the first time in a long time that we’ve had a drought this significant in the Corn Belt, and that’s why the market is so nervous.”

Products like boxes of corn flakes won’t likely go up, as those rates are mostly impacted by packaging, processing, advertising, transportation and the like. A 49% jump in corn futures will usually only result in an increase of around 0.5% in the product’s price.

Your burger is about to get pricier [CNNMoney]