As the Midwestern drought continues and grain prices soar, everyone is speculating on the possibility of higher prices in the supermarkets.
"We have already seen some commodity price hikes that were a direct result of the drought, such as cereals. We expect some unanticipated food inflation over the next several months," said Michael Rourke, spokesman for the A & P grocery chain in Montvale, N.J. "But, it's too early to see what the future holds."May's Consumer Price Index (CPI) rose only 0.3 percent, or a moderate 3.6 percent annualized. Food costs in the CPI also were up 0.3 percent. However, May's figures did not yet reflect the price effects of the drought, which experts expect will not be felt until late summer.
"We use the CPI as our barometer for future prices," explained Ralph Parlett, economist with the U.S. Department of Agriculture. "We were predicting a 2 to 4 percent increase in consumer food prices this year. Even with the drought, we're still within that range, with risk on the upside of perhaps another percentage point. Now we estimate the increase may be 3 percent to 5 percent."
This appears to be the consensus opinion, but other private economists predict that food prices may gain as much as 7 percent - if it doesn't rain soon.
The momentum of rising grain prices may be slowed by farmers and the government selling stored grain. Corn stockpiles are said to equal more than half the annual harvest. If the corn crop is reduced by one-third, as it nearly happened during the 1983 drought, expect the release of these stockpiles to more than compensate for any shortfall. Grain inventories were close to record levels last year.
"Although the drought has been a disaster, prices can't continue to climb when there are large supplies in inventory," said Jack King, a spokesman for the American Farm Bureau Federation. "We have a six- to seven-month supply of wheat and corn cushioning food prices."
Middlemen are warned. Earlier this month, agricultural officials from several states joined representatives of farm organizations in a press conference in front of Chicago's Board of Trade.
They warned the large food processors and supermarket chains against using the current drought as an excuse to hike consumer prices. The American Farm Bureau Federation also issued a report claiming that the current talk of higher food prices is "overblown."
"Only a small portion of a consumer's total food cost is attributable to raw materials," asserts King. "On the average, farm values only comprise approximately 25 percent or less of a product's price. Any increase in the farm segment should have a minimal effect. For example, the amount of corn used in a box of corn flakes costs around 4 cents. Even if the price of corn tripled, that box of corn flakes at the retail level shouldn't go up much."
But the major food retailers are remaining cautious.
"It's still too early," said John Shepherd, spokesman for Safeway Foods, Inc., in Oakland, Cal. "We see lots of price fluctuations every day, so it's hard to see the forest for the trees."
"We haven't noticed anything extraordinary for the last few weeks," said Louis Gonzalez, a representative for the Northern California division of Safeway Foods. "Right now, we have no problems."
However, Jim Risley, vice president of purchasing for the Certified Grocers Association in Forest View, Ill. is concerned.
"I hate to be the bearer of bad tidings, but it's already started snowballing," Risley said. "We are seeing higher prices across the board. It's not all drought-related either. We have a rash of price increases on household items. Higher labor and manufacturing costs are causing everybody to jump on the bandwagon. I expect increases of more than 5 percent to hit the shelves by August."
Another purchaser for a major supermarket chain reiterated Risley's concerns, stating that one well-known frozen foods producer raised prices 4 times in a 14-day period.
What food costs can we expect to increase?
- Grain. "Cereals will probably go up slightly, not out of the ordinary considering the drought," said Gonzalez. "I expect the price to stabilize in the fall."
- Dairy products. "We are seeing increases in eggs and butter this summer," said Risley.
- Fruit and vegetables. "Since most of the nation's fruits and vegetables come from farms in warmer climates that depend upon irrigation, I don't see any problems," said Gonzalez.
- Junk foods. "Anything that uses sugar, shortening or oil will be higher," according to Risley.
- Meat. "Meat will be lower," said Gonzalez,"because there's lots of beef and pork on the market now. But, in the winter we expect beef and poultry prices to rise."
Risley concurs, citing higher feed prices as the main reason why ranchers are bringing their herds to the market early. However, this trend leaves ranchers with smaller herds - and possibly higher meat prices in the spring.