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July 16, 2012
Food Prices Down, Drought Won't Impact Until Next Year
For more information on Newsline, contact: Johnna Miller, Director of Media Development, American Farm Bureau Federation johnnam@fb.org
The American Farm Bureau Federation’s Second Quarter Marketbasket Survey shows food prices have dropped. AFBF Economist John Anderson explains why and why the worsening drought won’t have an immediate impact on those prices in this story from AFBF’s Johnna Miller.
| Miller: | Retail food prices at the grocery stores dropped about 3 percent during the second quarter, with protein items like meat, cheese, milk and eggs showing the biggest decline. American Farm Bureau Economist John Anderson explains some of the reasons. |
| Anderson: | There was a little bit of softening in demand in the second quarter. Part of that may be related to the heat. We all think about going out and throwing something on the grill this time of year, but when it’s 95 or 100 degrees out that’s not nearly as fun and I think retail has had to work a little bit harder to move product and part of the way they work harder is to run more specials and give a little better deal. And also energy prices. We did get some relief on energy prices, transportation costs for instance. |
| Miller: | The Consumer Price Index and information from the Department of Agriculture show the same trend. But word of the serious drought scorching much of the nation has many consumers wondering what that will mean to their food prices. |
| Anderson: | There’s a lot in the news about the difficulty that the corn crop is facing and there will be fairly substantial damage to the corn crop it looks like from this year’s drought. That’s probably not going to have a lot to do with what you pay for cornflakes this fall. We use a very small percentage of the country’s field corn in products directly. In addition, most of the cost of those items, which tend to be very highly processed items, is in things like transportation and packaging and processing and the energy associated with that. Corn is actually a fairly small component of it. |
| Miller: | But on down the road, Anderson says it will likely have an impact. |
| Anderson: | What it will affect are livestock-related products. Things like dairy products, pork, beef, chicken because that affects feed costs. A reduction in the grain crop affects the availability and the price of feed. And as we see cost go up for the livestock sector their normal reaction will be to slow their production down and somewhere down the road that will influence retail prices. |
| Miller: | Anderson says it may also have an impact on the farm bill, which is currently sitting in limbo in the House of Representatives. |
| Anderson: | A drought does sort of focus everyone’s mind on why we have these farm programs and that they really are there for these events that are beyond anybody’s control that cause these really adverse outcomes for people. In the past the farm bill has dealt very directly with natural disasters. We really don’t have a lot of that in this farm bill. This may stimulate some calls for that kind of thing, but we’re in a very difficult budget environment to get approval for new programs. So I think it remains to be seen, but it certainly does highlight the role of the farm bill as a safety net in general. |
| Miller: | Johnna Miller, Washington. |
| Miller: | We have two extra actualities with AFBF Economist John Anderson. In the first extra actuality he says the current drought will likely have an impact on food prices next year. The cut runs 13 seconds, in 3-2-1. |
| Anderson: | The lags between production and actual retail prices realizations can be very, very long and a lot of things can happen to muddy the water there. But in general drought is a difficult circumstance to deal with and it will reduce production of some of these items. |
| Miller: | In the second extra actuality Anderson talks about the severity of the drought affecting much of the nation’s farm country. The cut runs 13 seconds, in 3-2-1. |
| Anderson: | If you look at last week’s Drought Monitor, which is produced by a number of federal agencies, a little better than 60 percent of the country was in the category that they classify as moderate to exceptional drought, which is a huge portion of the country. |
| Miller: | Newsline is updated Mondays and Thursdays by 5pm Eastern time. Thank you for listening. |