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USDA predicts strong food price inflation as drought continues

By Caroline Scott-Thomas , 31-Jul-2012

The US Department of Agriculture (USDA) is predicting substantial food price increases in 2013, if not sooner, due to the ongoing drought now affecting more than half of all US farmland.

The full extent to which the drought will impact food prices is not yet known, the USDA said in its latest food price outlook , but it expects higher prices across the board. Among the food products likely to be most strongly affected are meats – with poultry predicted to be the first to reflect the impact of higher feed costs – dairy products, and fats and oils, particularly soybean oil.

 “Soybean prices face pressure in 2012 from both decreased production in South America as well as the drought in the US,” the food price outlook said. “ERS [the Economic Research Service] now anticipates that prices for fats and oils will increase 4 to 5 percent in 2012.”

Most impact in 2013

It added that the impact of reduced supply tends to take several months to impact retail prices, and most of the impact is expected to be felt in 2013.

“Looking ahead to 2013, inflation is expected to remain strong for most animal-based food products due to higher feed prices. Furthermore, inflation should be above the historical average for food categories such as cereals and bakery products as well as other foods,” the USDA said.

The timing of the drought during a crucial phase in the development of corn and other commodity crops has been a major factor in its effect on food prices.

Poor crops

In a White House briefing on the drought, agriculture secretary Tom Vilsack said: “There’s no question that this drought is having an impact on our crops:  78 percent of the corn crop is now in an area designated as drought impacted; 77 percent of the soybeans that are being grown in this country also impacted.  It also obviously involves other commodities as well -- 38 percent of our corn crop as of today is rated poor to very poor; 30 percent of our soybeans poor to very poor.”

Overall, the drought now affects 62% of farms, and about two-thirds of total land area in some regions, according to the US Drought Monitor .

Vilsack added: “There is some degree of uncertainty about all of this.  Technology has allowed us to have more drought-resistant crops.  The spotty nature of drought, the spotty nature of rains can sometimes result in better yields than anticipated.  We're just going to have to see.”

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