July 25, 2012 / 9:45 PM / in 5 years

Drought lights fire under food prices, USDA says

WASHINGTON (Reuters) - Food prices will race ahead faster than prices of other goods in the United States this year and next, due to the worst drought in more than a half a century, the government forecast on Wednesday.

Drought-damaged ears of corn are seen against dry, cracked earth on a farm near Fairbury, Illinois July 24, 2012. REUTERS/Karl Plume

Food prices rose 3.7 percent in 2011, and American consumers may pay 3.5 percent more at the grocery store this year, with higher prices for meat, poultry and fruit, as the drought gripping the U.S. farm belt drives up crop prices.

The U.S. Department of Agriculture forecast that food prices would jump between 2.5 percent and 3.5 percent in 2012 and then rise 3-4 percent in 2013.

“The drought is really going to hit food prices next year,” said Richard Volpe, a USDA economist, adding the pressure on food prices would start to build later this year.

“It’s already affecting corn and soybean prices, but then it has to work its way all the way through the system into feed prices and then animal prices, then wholesale prices and then finally, retail prices,” Volpe said.

Food prices will rise far more rapidly than the overall U.S. inflation rate, according to USDA, a turnabout from the usual pattern. The U.S. inflation rate is estimated for 2 percent this year and 1.9 percent in 2013. Food inflation was 3.7 percent last year but only 0.8 percent in 2010.

Corn and soybeans have hit record highs on concerns the drought will slash yields for grain that is already in tight supply globally.

Corn for September delivery was up 3.5 cents on Wednesday to $7.93 a bushel after forecasts showing the region could expect only patchy rains and more of the scorching triple digit heat.

Reporting By Russ Blinch

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