Drought: Food prices poised to rise

The great drought of 2012 has run its course on America's farms. Grain producers have harvested shriveled corn and soybean crops. Livestock producers are cutting back herds to avoid higher feed prices.

But the drought's impact on supermarket store shelves is just about to hit. Consumers can expect to start seeing the effects near the end of the year in the meat case and dairy section, spreading to the rest of the grocery store by mid-2013. The price effects are widespread because the dry spell hit crops fundamental to America's food supply.

"This drought was timed and located to hit two of the largest field crops in the United States: field corn and soybeans," says Ricky Volpe, research economist at the US Department of Agriculture (USDA) in Washington. It affected about 80 percent of agricultural land, the most extensive dry spell since the 1950s, and resulted in the smallest corn harvest in six years.

Although corn is found, in one way or another, in about 75 percent of all food at the supermarket, it's chicken, milk, and eggs that will see the first price jumps, the USDA says. These products get to store shelves the fastest and will reflect the rise in corn- and soybean-based feed prices for chickens and dairy cows. Price hikes should kick in before the end of the year followed by increases in pork and beef prices in early 2013.

But there's a twist with pork: Prices could go lower before they go higher. Faced with paying more to feed a hog than they can recoup in the marketplace, farmers are shrinking their herds quickly, causing a temporary glut.

"Pork prices at retail will moderate somewhat in the fourth quarter of this year, as a record number of market hogs will be coming to market," says Shane Ellis, an extension field specialist for Iowa State University who is based in Carroll, Iowa. "This may be the best time for consumers to stock up as the supply of hogs will start to decline by early next year."

Beef supply was already declining before the drought hit, so consumers can expect the price of beef and other proteins to rise 4 to 6 percent in 2013, says Mike Miller, senior vice president for global marketing and research at the National Cattlemen's Beef Association in Centennial, Colo. Beef prices could rise by the same amount in the following two to three years.

"We've had a drought in the southern part of the US for the last three years, so this is one more straw – hopefully we haven't broken the camel's back," says Mr. Miller. "As an industry, we were optimistic 2012 would be the year [the herd would] grow. Due to everything that's happened, it will be another year that we'll decline slightly."

The drought's impact on packaged and processed foods will take longer to trickle down, about 10 to 12 months by USDA calculations. The pinch shouldn't be as severe as with meat. "In a given year, given normal conditions, we would expect retail prices to increase about 2.8 to 2.9 percent. If you look at 2013, we'll be at 3 to 4 percent," Mr. Volpe says. "Food price inflation is on the rise, not entirely due to drought."

There are ways to minimize the impact of the drought on your grocery bill, says Meg Favreau, senior editor at Wise Bread, a personal finance and frugal living website in Los Angeles. For example:

•Buy meat now, freeze for later. A chest freezer, which will allow buying and freezing in larger quantities, could add to the savings. "It's worth it to crunch the numbers for your family to see if the chest freezer would pay off," says Ms. Favreau.

•Look at alternatives. "I recommend using meat more as a flavoring agent than the main source of protein," says Favreau. Test-drive soy or almond milk in place of regular milk. Also, buy stronger, aged cheeses because a little goes a long way.

•Research your shopping habits. "Keep your receipts, analyze what you're buying and paying, and then look at other grocery stores and see how much items are at those stores," says Favreau. It may not work for everyone, but if you can stagger shopping across a few stores, the savings can add up.

•Shop ethnic. Ethnic markets often have better deals on everything from rice, noodles, and soy sauce to produce.

•Shop superstores wisely. Research places like Costco or Sam's Club before joining. How far away is the store? How much is the membership fee? How often will you go and what will you buy? "If you're buying too much and throwing things out because they've gone bad, that's not really worth it," Favreau says.

But it's not all doom and gloom at the grocery. "The lone bright spot for con-sumers in 2012 is that while the weather has been tough for our field crops and animals, it's been excellent for many of our fruit and vegetable crops," says the USDA's Volpe. Despite one early freeze in the fruit belt, USDA is predicting deflation in fresh produce prices.