U.S. Drought to Boost Food Prices Through Next Year

The drought epidemic impacting much of the U.S. will result in overall higher food prices in the coming months and well into 2013, according to analysts with Great American Group. Beef and dairy products will be affected in particular, which are expected to post substantial increases as the cost of corn continues to rise.

“The drought has caused a state of alarm in the food industry,” said Ken Bloore, COO of Woodland Hills, Calif.-based Great American Group’s advisory & valuation division. “A continued lack of rain in the U.S. will be detrimental to crop development. This will result in a tightened supply and higher prices for raw materials, livestock, feed, and crops, which could impact gross margins for companies throughout the industry.”

The dry spell has impacted nearly 60 percent of the continental U.S., representing the largest drought area to plague the country since the 1930s and 1950s. With cows starving from lack of pasture and farmers faced with the additional challenge of increased corn prices, the meat and dairy markets will be particularly impacted by this trend. As corn is a primary food source for cattle, there is great concern that farmers will be unable to maintain their animals in the coming months.

According to USDA estimates, overall food prices are expected to increase 2.5 to 3.5 percent through the year’s end, with increases expected in all categories. Grocery store prices are on track to increase between 2.5 and 3.5 percent as well, while restaurant prices are predicted to rise by 2 to 3 percent. Any increases may be magnified by the length of the drought period, which experts predict could continue into the foreseeable future.

Great American Group’s newest quarterly Food Monitor is available on the company’s website.