US drought drives up food prices

If you take a map of the US, you’ll see that almost two thirds are under severe drought warning this summer. Thirty-three states are colored red, longing for rain. Some farmers in Missouri haven’t seen clouds in the sky for more than three months. Ranchers fear that soon they might have to sell their cattle. Crop producers are desperate since many do not have insurance.

Yet the situation is not only bad for them but also for consumers. Food prices are already soaring. And since the US is a major food exporter, the drought is affecting other countries. Corn prices, for example, have hit record highs in recent weeks. The U.N. index of cereal prices soared 17% last month, getting closer to its all-time high set in April 2008.

But how bad is it going to be?

“We would expect to see somewhere between a half a percent to a percent increase in food inflation as a result, or food prices, as a result of the drought. One-half percent to a percent increase. We normally see 3 percent food inflation; we’re expecting 3 to 4 percent next year. In fact, we’ll probably likely see a decline in some food prices for the short term, as folks are liquidating their herds. There may be beef, poultry and pork opportunities where prices go down just a bit,” explains Agriculture Secretary Tom Vilsack to Market Place.

Experts warn that the severity of food inflation depends on how long the drought in the United States lasts. For some, we should expect meat prices to move higher into next year because US farmers will reduce their cattle. However, the effect shouldn’t be as hard as it was during the international food crisis of 2007 and 2008, because even if corn prices are sky rocketing, consumers have other choices to fall back on.