U.S. Grocery Prices Tick Up as Drought Impact Looms

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Published July 26, 2012

| FOXBusiness

American shoppers paid more for everyday groceries in June than they did in the month and year earlier, and the government warns prices may continue rising as the effects of the Midwest drought reverberate to supermarket shelves.

The FOX Business Shopping Cart jumped $1.02, or 1.3%, to $79.58 in June from the month before. As compared with the same month in 2011, the cart -- composed of 30 items that are commonly consumed by American families -- climbed $2.19, or 3%.

The price of the cart that is derived with average price data from the Labor Department is sitting just 21 cents off the record high notched in the first month of the year. Meanwhile, average U.S. earnings haven’t grown quickly enough to keep pace with the rise. The average American worker who earns $19.74 an hour, according to the Labor Department, needs to work for roughly four hours and two minutes to purchase the cart. That represents an increase of 1% on the year and the month. 

However, that value sits just a few minutes above the average between 1998 and 2011.

A Bigger Jump on the Way?

Food prices may be poised to climb even more dramatically as the effects of the worst drought to hit the Midwest since the 1950s begin to make their way to the food supply chain.

A report released earlier in the week by the U.S. Department of Agriculture showed 45% of the corn crop in major growing regions was in either poor or very poor condition last week, an increase from 38% from the week before. That variety of corn is a critical component of feed farmers give to animals, and is distinct from the sweet corn that humans consume, according to the USDA.  

Read: Farmers ‘Limping Along’ as Drought Ravages Midwest

The condition of soybeans has also deteriorated, with 35% in poor or very poor condition, up 5 percentage points from the week before. A separate report showed 39% of U.S. cropland was in drought conditions that are severe or worse in mid-July, while 62% are in some level drought.

Worries about the corn supply are already rattling the futures market, where corn for September delivery is up 50% from late May.

The USDA says it is too early to gauge the impact of the drought on retail prices, which will depend on the long-run severity of the drought and how much crop is destroyed. However, the agency reckons prices will increase for beef, pork, poultry, and dairy products within the next two months and into 2013. However, in the shorter term, prices for these foods may actually fall as farmers cull their herds as they grapple with soaring feed prices.  

Watch: Cattleman Forced to Sell Cows as Feed Prices Jump

It may take between ten months and a year for the drought to impact packaged and processed foods like cereal, the USDA says. One potential silver lining is much of the wheat crop was already harvested before the intense drought conditions began.

Unpacking the Cart

Out of the 30 items in the cart, fruits and vegetables posted the biggest increase in June from May. The price of tomatoes, for example, lurched nearly 12% higher to $1.49 a pound. Iceberg lettuce, broccoli and red delicious apples both saw an increase of half that margin.

Looking at meats, the price of sirloin steak jumped 6.2% to $6.82 a pound on a month-to-month basis. Chicken, ham and ground chuck prices were also up by more than 1% each. In the beverage category, malt beverages, which includes items like beer, gained 6.2% to $1.28 for a 16-ounce container.

American cheese, ice cream and sugar were the only three items to fall by more than 1% from the month before.

The price of nearly half the cart jumped more than 1% from June 2011. The biggest increase by a wide margin was seen in peanut butter, which soared some 42.1% to $2.79 a pound. Other big gainers included chocolate chip cookies, sirloin steak, lemons, and pasta. Big drops in bacon, milk, iceberg lettuce, broccoli and tomatoes helped to keep a lid on the year-to-year increase.

URL

http://www.foxbusiness.com/economy/2012/07/26/everyday-us-grocery-prices-tick-up-as-drought-impact-looms/