Group Predicts Increased Food Prices in Coming Months

By CnAgri2012-08-24 19:38:11 Print

Analysts with Great American Group, LLC believe the drought that continues to plague much of the U.S. will result in overall higher food prices in the coming months and well into 2013--particularly retail prices for beef and dairy products, which are expected to post large increases as the cost of corn continues to rise and cattle herds are further impacted by the drought.

"The drought has caused a state of alarm in the food industry," says Ken Bloore, chief operating officer of Great American Group's Advisory & Valuation Services Division. "A continued lack of rain in the U.S. will be detrimental to crop development. This will result in a tightened supply and higher prices for raw materials, livestock, feed, and crops, which could impact gross margins for companies throughout the industry. Weather conditions will be an important factor in the coming months for most food companies, particularly those within the meat and dairy industries."

The dry spell has impacted nearly 60 percent of the continental U.S., representing the largest drought area to plague the U.S. since the 1930s and 1950s.

According to USDA estimates, overall food prices are expected to increase 2.5 to 3.5 percent through year-end, with increases expected in all categories. Grocery store prices are on track to increase between 2.5 and 3.5 percent as well, while restaurant prices are predicted to rise by 2.0 to 3.0 percent. Any increases may be magnified by the length of the drought period, which experts predict could continue into the foreseeable future.

With cows starving from lack of pasture and farmers now faced with the additional challenge of increased corn prices, the meat and dairy markets will be particularly impacted. Since corn is a primary food source for cattle, there is great concern that farmers will be unable to maintain their animals in the coming months.