Food inflation may rise to 3% to 4% in 2013 after drought

July 25 (Bloomberg) -- U.S. consumers may pay 3 percent to 4 percent more for food next year, as the effects of the country’s worst drought since the 1950s work their way onto supermarket shelves, the Department of Agriculture said in its first forecast for 2013.

Beef may rise as much as 5 percent in response to tight supplies of corn, which is used to feed cattle, the USDA said today in a report on its website. The price of the grain, the country’s biggest crop, has surged more than 50 percent since June 15. Food prices will rise 2.5 percent to 3.5 percent this year, the agency said, leaving its 2012 estimate unchanged.

Corn and soybean futures both reached record highs this week on the Chicago Board of Trade, and wheat touched its highest since 2008 as the dry conditions worsened in the Midwest and Great Plains. The drought that prompted the USDA to declare natural disasters in almost 1,300 counties in 29 states -- about a third of the country’s total -- may lead to the smallest corn harvest since 2006, Doan Advisory Services Co. said July 23.

“The transmission of commodity price changes into retail prices typically takes several months to occur, and most of the impact of the drought is expected to be realized in 2013,” said Richard Volpe, the USDA’s food economist, wrote in a note accompanying the forecast.

Purchasing Power

Food costs have risen 1 percent so far this year, the government said earlier this month.

Higher commodity prices may affect everything from meat purchased by McDonald’s Corp. to the grain bought by General Mills Inc. to the sweeteners used by Coca-Cola Co. More- expensive food has already eroded purchasing power at Save-A-Lot stores operated by SuperValu Inc., the third-biggest U.S. grocery chain, Craig Herkert, the chief executive officer of the Eden Prairie, Minnesota-based company, said in a conference call with analysts July 11.

Still, higher crop prices may not immediately be reflected on store shelves. McDonald’s, the world’s largest restaurant chain, has lowered its estimated 2012 increase in grocery costs to 3.5 percent to 4.5 percent from 4.5 percent to 5.5 percent, Peter J. Bensen, the chief financial officer of Oak Brook, Illinois-based McDonald’s, said on a conference call with analysts July 23. The company bought grain and other commodities before the drought-induced rally, locking in lower prices.

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