Corn and soybean market prices have hit record highs this week due to the Midwestern drought, but so far the impact on consumer prices is just beginning.
Pat Westhoff is the Co-Director of the Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri. He says a consumer price report for June shows similar food price inflation to previous months. Price hikes are coming, but he says they’ll take time to reach supermarkets.
Changes in prices for products made directly from corn and soybean oil will come first. “The main effects are going to be probably a bit delayed because they’re going to happen through the livestock sector. As we all know, cattle production doesn’t turn on a dime, so it’s going to tack a while before we see reduced cattle numbers translate into less beef and less beef eventually turns into higher prices. Same holds for pork, same holds for chicken.”
Some manufacturers might start adjusting prices soon in anticipating of higher input costs. Westhoff says, “It’s important to remember a lot of those items are items where the farm value of the products that’s in those items is very small. If you buy a box of cereal, the actual amount of corn or wheat or something that’s included in that box of cereal is a very, very small share of the overall value of that product on the grocery store shelf. So, changing the farm price of corn or wheat by a lot only has a very small in proportion impact on prices at the grocery store.”
The good news, Westhoff says, is that the U.S. had been on track for lower food prices were it not for the drought. “So what this may do is instead of causing a huge, fast rate of growth in food prices in front of us, it may just stop what would have otherwise have been a decline in food price inflation in the months ahead.”
Westhoff says exactly how bad this year’s drought is won’t be fully known until it’s over, but among analysts it’s already being placed among historic company. “Clearly this has lots of parallels at least to 1988, the last time we had a really, really severe drought across the entire country … some people say it may be worse than 1988 already. Maybe more like some of the droughts of the 1950s.
“So there are some historic parallels but of course there are lots of things different in the world now than was the case back then.”