Drought Potentially Impacts Food And Gas Prices
ST. LOUIS (KMOX)- The drought across the U.S. is the largest since 1956, with more than half the nation experiencing moderate to extreme drought, according to a government report.
With no relief in sight, the impact of the drought is being felt right now by corn farmers, but the impact on your wallet is coming.
Because farmers haven’t harvested the corn yet, agricultural officials say there are a lot of unknowns but Kevin Caron, Market Anaylst with Stifel Nicolas explains what we do know.
“We see that now, only 30 percent of the corn crops are consider to be in very good condition,” Caron says.
The Director of the MU Food and Ag Policy Research Institute, Pat Westhoff says a decreased harvest means higher corn prices which impacts foods made from corn but also has a big impact on livestock production cost.
“Those higher costs reduce profit margins for livestock producers causing some to scale back or quit production altogether,” Westhoff says. “That means higher prices for meat and milk and some of that will filter to grocery stores and restaurants in months ahead.”
However Westhoff says for cattle farmers who decide to put their beef on the market early because the cost to feed them is too high, means we could see lower beef prices. But he says that won’t last for long.
First a look at what could have been.
“We were on track to have very good corn crop because of record levels of planting since WW2,” Westhoff says. “We might have seen much lower prices not just for corn but for any variety of farm commodities this fall had it not been for mother nature.”
Westhoff says while foods made with corn may increase in prices by 6 percent, the biggest impact is on that same higher priced corn used to feed livestock which the department of agriculture says has added up to 80 dollars per head of cattle. So why might we pay less for beef in the near future?
“Because in near term when people are putting beef on market with a few more cattle earlier than they would have otherwise, fact is less cattle in countryside will eventually mean less beef production and higher prices,” Westhoff says.
Westhoff says the eventual size of the corn crop will determine how high grocery prices actually go.
Because the corn product Ethanol is used in gasoline, will people also have to worry about higher gas prices?
“We’re just going to have to see what the long term impact is,” Sykuta says. “I don’t see a short-term gasoline price impact at this point.”
He says there is still a lot of corn in storage. The feds regulate how much has to be sold for fuel, and Sykuta says it remains to be seen whether the corn supply will effect future gasoline prices.
Sykuta isn’t ready to declare the nation’s corn crop ‘dead,’ but he knows that economists are already speculating.
“If the corn crop is really bad all around the country it may reignite this food versus fuel debate,” he says.