The colossal heat wave blanketing farms from New York State to the plains is projected to result in the price of staples going up -- way up.
Some analysts speculate a gallon of milk could cost anywhere from 10 cents to 40 cents more per gallon depending on where in the country it's sold. And the U.S. Department of Agriculture (USDA) projects the punishment crops have taken at the hands of Mother Nature will spell bad news for your weekend barbecue as well as your overall grocery budget.
One crop in particular has been walloped by the drought; 1,584 counties in 32 states have been designated primary disaster areas, according to the USDA. When this crop's price goes up, the domino effect it creates is on such a massive scale that the cost of numerous products -- food and beyond – will escalate as well.
How Heat Links To Your Grocery Bill
The U.S. is experiencing one of its greatest droughts since we started keeping records in the 1880s, according to Mike Smith, senior vice president of AccuWeather Enterprise Solutions.
'Making it especially tough on crops is the accompanying extremely high temperatures that have topped 110 degrees on several days in Kansas and Oklahoma,' Smith said.
As of early August, more than 52% of the U.S. was in a moderate or worse drought, making this drought the worst of this century, according to John Bateman, a meteorologist at Earth Networks, which operates the world's largest weather monitoring and lightning detection network.
The decrease in production of one crop is hitting prices particularly hard, affecting everything from fuel to eggs to even drinks. It's something that is ever-present in our food -- corn.
'Areas hit unusually harder than normal by this drought are the Corn Belt states of Iowa, Illinois, Indiana, Missouri, Arkansas, Kentucky and Tennessee,' Bateman said. 'Corn and soybean crops have been hit especially hard, seeing their worst season since the drought of 1988.'
'In the spring of 2012, farmers planted 96.4 million acres (of corn), which is an area larger than Japan,' said Justin G. Gardner, assistant professor of agribusiness at Middle Tennessee State University in Murfreesboro, Tenn.
Hot, dry weather has left that enormous crop dramatically reduced. The most recent USDA projection has corn production at 20 fewer bushels per acre than the original projections at the start of the crop year.
'That represents a decrease of approximately 50 million tons,' Gardner said. 'That decrease will translate into less corn, which will drive up the price of corn.'
Jeff Johnson, associate professor in the Department of Agricultural and Applied Economics at Texas Tech University, adds this dire perspective to the projection: 'The 2012 drought may reduce total U.S. corn production by as much as 20 percent,' he said.
Wheat and soybean are also harmed by the drought -- and also are among America's top 10 agricultural products.
'Soybeans are processed into soybean oil and soybean meal, which is also used as an animal feed,' Gardner said. 'Wheat crops are commonly used for food.'
Because of the higher-priced feed, farmers and those buying corn, soybeans and wheat to use in food products will pass on some of the cost to consumers. Here are the eight products most affected.
Meat: Up by about 9.5% by 2013
Corn is a significant ingredient in the feed of all livestock. Johnson said we can expect to see the highest price increases resulting from the drought on meats, pork and poultry. According to the USDA food price outlook projections for 2012, we can expect these price hikes:
- Beef and veal: Prices will rise 3.5% to 4.5% in 2012 and another 4% to 5% in 2013.
- Pork: Prices will rise 2% to 3% in 2012 and another 2.5% to 3.5% in 2013.
- Poultry: Prices will rise 3.5% to 4.5% in 2012 and another 3% to 4% in 2013.
Cooking oil: Up by about 8% by 2013
The oil with which you cook, fry, bake and coat pans is often made from soybeans and corn.
'Higher corn and soybean prices will lead to higher prices for cooking oil,' Gardner said.
How high will the prices go? The USDA says 4% to 5% in 2012 and another 2% to 3% in 2013.
Eggs: Up by about 6% by 2013
There's no confusion about what comes first here. First comes higher-priced chicken feed and next comes a higher-priced egg. The drought will result in an increase of prices by 1% to 2% in 2012 and another 3% to 4% in 2013.
Cereals and bread: Up by about 8.5% by 2013
The drought will hit the makers of cereals, breads and pastas with higher prices of a few ingredients: wheat, eggs, corn and corn syrup, fats and oils. So the prices of processed and packaged foods such as mac and cheese, cereals and bread made with drought-damaged crops are expected to rise 3.5% to 4.5% in 2012 and another 3% to 4% in 2013.
Milk: Up by about 7.5% by 2013
Dairy farmers also need to buy corn to feed their chickens and cows, which is why the USDA says consumers can expect increases in dairy prices of 2% to 3% in 2012 and another 3.5% to 4.5% in 2013.
Candies and sweets: Up by about 6% by 2013
Expect to pay more to please the ghouls and goblins looking for treats this Halloween. Trick-or-treat favorites like caramels, candy corn and others candies are made with corn syrup. The USDA says candy prices will rise 2% to 3% in 2012 and another 2% to 3% in 2013.
Corn ethanol: Up by 17%
Nearly every drop of gasoline used in the U.S. has a 10% blend of ethanol in it, and most ethanol is produced from corn. As the price of corn climbed up in July 2012, ethanol prices surged up 17% and are expected to continue rising.
Soy beverages: Up by about 9% in coming months
They're a popular alternative to milk, but soy drinks might not be popular with your budget. The USDA is forecasting the price for a bushel of soybeans to rise by nearly 9% this fall. If that happens, the cost to make soy beverages will increase, too.
The Investing Answer: To protect your pocketbook from the rising costs of these foods, get creative about saving money on foods like fruits, vegetables and sugar. When grocery stores place these items on sale, buy extra to either freeze or store in the pantry. Aim to buy more unprocessed foods, as these don't contain added corn and soy. Check your grocer's website or weekly flier for the price of items affected by the drought to make sure you're getting the best deal.
