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Originally published July 25, 2012 at 6:59 PM | Page modified July 26, 2012 at 12:18 PM

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Severe drought to raise food prices next year

The drought is expected to push up food prices by 3 to 4 percent next year, the Commerce Department reported Wednesday.

New York Times News Service

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WASHINGTON — The worst drought in the United States in nearly a half-century is expected to drive up the price of milk, beef and pork next year, the government said Wednesday, as consumers bear some of the brunt of the sweltering heat that is driving up the cost of feed corn.

Poultry prices are expected to rise more immediately, the government said in a report. It estimated that consumer price indexes for chicken and turkey would rise 3.5 percent to 4.5 percent later this year.

"The poultry category is the smallest animal category, and we expect to see more of an effect this year because they grow the fastest and will be first to be impacted by higher feed prices," said Richard Volpe, an economist with the Department of Agriculture.

Figures released Wednesday by the department showed the largest percentage increase next year in its price indexes is expected for beef, a rise of 4 to 5 percent. The price of dairy products will increase 3.5 to 4.5 percent and eggs by 3 to 4 percent. Pork is expected to rise 2.5 to 3.5 percent.

The data is the first government estimate of how much prices could rise next year because of the drought that has gripped most of the country this summer, producing a lower-than-expected yield in corn, soybeans and several other commodity crops.

Corn is now selling at about $8 a bushel — up 50 percent from where it was priced at just a month ago. Soybeans are at a record price of almost $17 a bushel, up from $13, just two months ago.

Food prices overall rise about 1 percent for every 50 percent increase in corn prices, because corn is used in dozens of products, according to the Agriculture Department. Corn can be found in everything from soft drinks to baby food, but nearly half of the crop is used to feed livestock.

"These are very corn-intensive operations," said Bruce A. Babcock, an agriculture economist at Iowa State University, referring to raising livestock. "So customers will see an increase in the prices they pay for beef and dairy as the price of feed rises because of a drop in production."

According to the government, 88 percent of the corn crop this year is now affected by the drought and 77 percent of the crop for soybeans, used in animal feed and some dairy alternatives, is affected.

The Agriculture Department slashed its estimate for what was supposed to be the largest corn harvest on record. The government cut its corn yield forecast to 146 bushels an acre for the year, the lowest corn yield since 2003; the outlook last month was for 166 bushels.

Because of the dry weather, cattle farmers in a number of states have already started selling off or culling cattle because the drought has ruined grass for grazing and the price for corn for feed has skyrocketed.

Daniel R. Glickman, the agriculture secretary for former President Clinton, said that as farmers start culling or selling herds, meat prices could fall because of a glut of beef on the market.

"So in the short term, that's good for customers," Glickman said.

But the prices of beef, pork, chicken, eggs and dairy are expected to rise significantly later in the year, most likely around November, agriculture economists say.

Ken Colombini, a spokesman for the National Corn Growers Association, a trade group in Washington, D.C., said not all of the rise in food prices could be attributed to a rise in corn prices.

"A drop in corn production is a factor, but animals are under other stresses related to the drought as well," Colombini said.

Ray Gilmer, a spokesman for the United Fresh Produce Association, said fruit and vegetable producers, for the most part, were not being affected by the drought.

"Most of these operations are irrigated and the water is highly regulated so we are not having issues with our crops," Gilmer said.

Despite the drought, many agriculture economists expect the farm economy to remain strong, mainly because most farmers participate in the federal crop-insurance program.

Under the program farmers can obtain policies that cover drops in prices or yields.

In 2011, 265.7 million acres of crops were insured, with payouts of $10.8 billion because of weather-related damage in Texas, Kansas and a few other states.

For a few lucky farmers, there could be an upside to the drought, Babcock said.

"By collecting insurance but selling the remaining crops at the now-record prices, they could see a larger increase in revenue then they did last year," he said.

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