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The drought that has hit much of the nation, including parts of New England, is expected to drive up food and gasoline prices in the coming months, further squeezing cash-strapped US consumers.
With nearly two-thirds of the nation in drought, the US Department of Agriculture recently slashed its estimates for corn and soybean production. Both are key crops in the US food production chain — used in livestock feed, oils, and sweeteners — so when their costs rise, so will prices for other foods.
Corn is also used to make ethanol, which is blended in gasoline — so expect higher prices at the pump, too.
The impact of the drought will take several months to reach supermarket shelves, but food prices could rise an average of 3 to 4 percent next year, according to the USDA. Average food prices in July, both nationally and in Boston, were 2 percent higher than a year ago, after jumping 4 percent in 2011, according to the US Labor Department.
Grocery chains like Stop & Shop say they are monitoring the situation, worried that further increases in food prices could lead consumers to pull back further on spending. At a Shaw’s supermarket in Dorchester, John Muldowney, 68, a retired electrician from South Boston, said higher food prices will only make it tougher to get by on a fixed income.
“Utilities keep going up; gas keeps going up,” said Muldowney. “I don’t know how I’m going to cut back.”
The drought represents another hit for consumers and the US economy, which counts on consumer spending for more than two-thirds of its activity. The impact, however, will reach well beyond US borders, since the United States is the world’s leading producer and exporter of corn, the feed stock of so many food products. Prices for the commodity have risen roughly 60 percent since June.
“That means higher prices for everybody,” said Nigel Gault, chief US economist for the Lexington forecasting firm IHS Global Insight.
In Vermont, that could mean higher feed prices for dairy farmer Earl Ransom, adding to the squeeze from a 5 to 10 percent drop in milk production because his pastures aren’t yielding as much grass for his cows. Ransom, who owns Rock Bottom Farm in Strafford, usually spends about $40,000 to $50,000 on feed a year. But with grain costs projected to rise 25 to 30 percent, he expects to spend roughly $75,000 this year.
His wife, Amy Huyffer, said that if grain prices continue to climb, dairy farmers will have to pass on the costs to consumers, who could could see a 25- to 30-cent-per-gallon increase in milk’s retail prices in the future.
Recent rains, however, have provided some relief.
“I’m cautiously optimistic that things will almost be OK,” Ransom said. “That rain brought us back from what was looking like it was really bad.”
At Wheel-View Farm in Shelburne, where Carolyn and John Wheeler raise grass-fed beef, dry weather has stunted pastures, forcing them to supplement the cattle’s grazing diet with hay, increasing costs.
Cattle farmers around the country are dealing with the same problems and spending more to buy hay and feed. In many cases, they have slaughtered animals they can no longer afford to keep, tightening cattle supplies. As a result, the prices the Wheelers pay for calves at auction have nearly doubled.
The additional costs, Carolyn Wheeler said, mean she and her husband will soon need to charge more for their beef. “After we sell the batch of beef we have now — we’re making a major delivery on Sunday — our prices are going to have to go up,” she said.
Overall, beef and veal prices nationally are expected to rise between 4 and 5 percent next year. Restaurants like the Smith & Wollensky steakhouse chain, headquartered in Boston, are already considering options to deal with the rising costs. Corporate chef Matt King said the chain’s current contract for beef runs through mid-January so restaurant prices should remain stable.
But if prices remain on the rise after that, King said, the chain will look to see where it can absorb costs or tweak its menu to include more seafood before upping its prices.
Analysts say the drought will also have an impact on gasoline prices because the fuel is partially blended with ethanol made from corn. Phil Flynn, an analyst at The Price Futures Group in Chicago, said he expects higher corn ethanol costs to add 5 to 6 cents to gas prices.
Ultimately, the only real fix for the drought will be rain and cool weather, which has been a bit more abundant recently in Massachusetts. Drought conditions in parts of the Midwest and Southeast have also eased this week.Continued...