Officials: Food prices to increase due to drought

BY ANNA EGELAND | JULY 18, 2012 6:30 AM

The Iowa River is nearly 3 feet lower than last year’s level near the Burlington Street bridge. Iowa and much of the Midwest has suffered its worst drought in 50 years this summer.
(Michael Fanelli/The Daily Iowan)
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As temperatures remain high and rain clouds remain scarce, state experts suggest food prices are likely to skyrocket this fall.

The last statewide rain occurred on May 31, and as a result, the state's farms and bodies of water are drying up. The Iowa River level was 9.33 feet on Tuesday, compared with last year's depth of 12.07 feet, according to data collected by the U.S. Army Corps of Engineers.

Dave Miller, the director of research and commodity services at the Iowa Farm Bureau, said the drought is hurting corn crops.

The result?
Miller said corn prices have increased almost 50 percent over the last six weeks.

"Each day the drought goes on, it's probably taking two bushels off expected yield," he said.

Physiologically, corn is at a critical stage of development right now, but Miller said he expects soybeans to show more signs of stress in the next two or three weeks.

"We depend on rain … there's not much we can do," he said.

Don Roose, the president and CEO of U.S. Commodities in Des Moines, compared the drought with similar conditions in 1983 after July 4 and 1988 before July 4. The difference, he said, is this year the drought started before July 4 and is continuing past that date.

"[The drought is] longer in duration and more intense," he said.

Roose said the drought has moved the value of corn up around $2.70 a bushel, and meat prices will increase this fall because livestock is the largest consumer of grain.

"In the short term, what should happen is you get liquidation of the livestock," he said.

This means there will be more supply on the market, and prices will likely decrease in the short run as farmers sell meat from livestock they cannot afford to feed, he said.

But in the next year, Miller said meat prices are expected to increase 5 to 8 percent.

Dustin VandeHoef, the communications director at the Iowa Department of Agriculture and Land Stewardship, said it will be next summer before farmers get a chance to recover from the drought and rebuild stock.

"For livestock producers, it's very tough," he said. "Their animals need to eat."

It's no picnic for corn farmers, either.

Miller said Iowa lost 20 percent of this year's prospective corn yield.

"Corn prices are exploding," he said.

Ruth Comer, assistant vice president for Hy-Vee media relations, said food prices are at the typical level for the time of year.

"At this point we don't really know what's going to happen … there's still an opportunity for the situation to have a good outcome," she said. "All we can do is keep an eye on the situation."

Miller said the drought will affect the prices of food items that rely on livestock products.

"We're likely to see some pressure on milk and cheese prices in the second half of 2012," he said, predicting egg prices will follow suit shortly after.

Beef prices are likely to stay high for a long period of time, while poultry farmers are able to adjust production more quickly, Miller noted.

Miller predicted food prices will change incrementally over the next 90 to 180 days.

Food prices are not the only product that the drought will affect.

Roose said the drought may also affect gas prices, because ethanol constitutes up to 10 percent of the fuel bought in most states and 30 percent of this year's U.S. corn crop will be used to make ethanol.

"We've got ourselves in a precarious situation with the biofuels," he said.

Local analysts agree the drought will not disappear quickly and the effects will be long-lasting.

"This is a significant event that's occurring, it's not just a dry spell," Miller said.

Miller predicts the drought will rank in the top two or three worst recorded droughts and rival the Dust Bowl.

"Our markets very much depend on Mother Nature — that's the bottom line," Roose said.

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