July 30, 2014

Drought expected to hit the price of dairy products

Some Iowa farmers had a very rough 2012 due to the drought and it’ll translate to a more expensive 2013 for consumers. A report from the U.S. Department of Agriculture predicts food prices will be rising in the months ahead. U.S.D.A. economist Ricky Volpe says the big hike in livestock feed prices means beef, pork and chicken will cost more.

“We’re going to see strong food price inflation for a lot of animal-based products,” Volpe says. “That’s expected to happen relatively early in the year, in the first quarter or the first half of 2013.” Food prices rose about two-and-a-half percent this year and the agency predicts they’ll rise three-to-four percent in the year ahead. Volpe says meat prices will go up initially, with many other items costing more by late summer.

“That’s when we can expect to see more significant impacts for all these more packaged, processed, shelf-stabled foods, things like soups, condiments and side dishes, and then even things like breakfast cereals and packaged breads,” Volpe says.

“That’s where we’ll start to see the impacts of the drought happen a little bit later. Consumers are going to feel it more for those foods. It’ll be a little bit smaller but it will happen in the second half of 2013 and maybe even in 2014.” Volpe says the effects of the summer-long drought will continue to have ripple effects in all grocery aisles.

“We’ve seen, in the last couple of months, fluid milk prices ticking up,” Volpe says. “It does appear as if, for this food, the drought has really started to hit it. We always expected that fluid milk and dairy would be kind of a good bellwether of where the drought is headed because we’re looking at a food group that is not very storable and doesn’t require a lot of processing. Expect to see dairy products, this large category, on average go up about 4% in 2013 as a result of these higher feed prices.”

The report says the price of milk and other dairy products could double if price supports are not addressed by Congress in a new Farm Bill by the end of the year.