Smart SpendingSmart Spending

Heat wave could swell grocery bills

Drought conditions across the nation could mean higher food prices in coming months.

By MSN Money Partner Jul 16, 2012 2:00PM

This post comes from Meg Handley at partner site U.S. News & World Report.


U.S. News & World Report on MSN MoneyAs if sweltering in triple-digit temperatures around the country weren't bad enough, consumers could face more pain in coming months, this time in the checkout line at the grocery store.


Scarce rainfall coupled with record-high temperatures has scorched crops in many of the nation's major corn-producing regions, with as much as 60% of corn grown in the United States experiencing drought conditions in June, according to the U.S. Drought Monitor. (Post continues below.)

Though this year's haul could still be one of the largest on record, according to some estimates, the Department of Agriculture is scaling back its forecasts, noting that this year's crop conditions are the worst since 1988.


"The best-case scenario at this point is (a harvest) on par with 2002 or 2003, meaning now we're looking at one of the worst harvests we've had in 10 years," says Ricky Volpe, a research economist at the USDA's Economic Research Service. "It could improve slightly, but it depends on when the first rainfall comes."


Bottom line: A smaller harvest of corn could translate into higher prices for everything from cereal to soda pop by this fall -- unfortunate, especially since food prices increases had been slowing down in recent months.


Here are a few ways your wallet could take a hit thanks to the hot weather:


Dairy. Corn isn't just used for consumer food products; it's an essential component in animal feed. With drought conditions crimping corn harvests, prices have edged higher, tacking on an extra $75 to $80 in production costs per head of cattle, according to estimates.


If farmers and ranchers have to fork over more money to feed their livestock, it costs more to produce things such as milk and cheese. That means consumers could see price hikes to the tune of 6%, making the trip down the dairy aisle a little pricier.


Beef, pork, poultry. Meat prices are a bit more complex, and economists say the hamburgers and pork chops sold at the supermarket could actually end up being cheaper in the coming months -- but only for a relatively short time.


Image: Packaged ground beef (© Frank Bean/Uppercut RF/Getty Images)With the price to feed cattle and other livestock inching up and the amount of water it takes to keep large animals hydrated, it could end up being more cost-efficient in the near term for farmers to send cattle, hogs and chickens to the slaughterhouse instead of keeping -- and feeding -- them on the range.


"Meat prices might actually fall in the short term because (farmers) have to rush their livestock off to the slaughterhouses so they don't have to pay for the more expensive feed or worry about the animals passing away," says Chris Christopher, an economist at IHS Global Insight.


That means there could be a lot more meat on the market this year, temporarily pushing down prices or at least muting increases.


But don't get too excited. Meat prices will likely shoot up again in the future due to the resulting cattle shortage.


"There may very well be a dip in the short term as the market is flooded, but (in the) long run, this will exacerbate the problem in terms of beef prices," Volpe says, noting that the price of beef has been on the rise in recent years. "Even before all this news about the drought, beef was on pace to rise about 4% to 5%, more than any other major category."


Anything made with corn, wheat, or soybeans. It isn't just corn farmers who have been burned by high temperatures. Soybeans and wheat crops are also suffering from the drought. Along with corn, wheat and soybeans are in a vast number of products -- everything from bread to vitamins to cooking oil.


"Corn is one of the single most important inputs to retail foods," Volpe says. "Corn affects almost 75% of the goods available in the supermarket."


It'll take a while for higher corn prices to trickle down to consumers -- about 10 to 12 months, Volpe says -- especially since farmers don't know exactly what kind of havoc Mother Nature's antics have wreaked on their crops.

"We really won't have a good idea of what effect this drought is going to have on prices until we get that first rainfall and we can revise our outlook at the USDA on the corn that we're going to harvest," Volpe says.


Still, experts say consumers could see some sticker shock as early as this fall, especially if dryness and high temperatures persist.


More on U.S. News & World Report and MSN Money:



Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


Smart Spending brings you the best money-saving tips from MSN Money and the rest of the Web. Join the conversation on Facebook and follow us on Twitter.