Rising Corn Prices Will Soon Mean Fatter Meat Prices

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Beef pricesThe government may have reported a core inflation rate for September that barely budged from August, but there's still bad news for consumers at the grocery store: A spike in corn prices will probably lead to higher meat prices soon.

The price of corn has shot up 8% during the week of Oct. 11 alone, bringing the total rise to close to 50% in the last three months. The sharp increase came after the Department of Agriculture issued a forecast for corn production that was 4% lower than the forecast it had issued in September. That would put the crop at 12.7 billion bushels, about 3% less than last year's crop.

Most of the corn is used for animal feed, so it's an important component of beef and pork prices (and, of course, ethanol).

Food Costs Are Creeping Higher

Darrel L. Good, a professor agriculture and consumer economics at the University of Illinois, says cattle and pig farmers can't pass those price increases along, so they're cutting back their herds. "That eventually shows up as smaller supplies at the retail level, and smaller supply speaks to higher prices," Good says.

That's an extra burden consumers don't need. The Bureau of Labor Statistics said Friday that the consumer price index had increased only 0.1% in September. But the food component rose 0.3% after a 0.2% increase in September, thanks to higher wheat prices caused by a drought in Russia.

The price index for meat, poultry, fish and eggs rose the most, increasing 0.9%, with eggs up 7.2%. In all, food prices are up 1.4% in the past 12 months.

More Pressure on Prices Is Coming

Ephraim Leibtag, an economist with the U.S. Department of Agriculture's Economic Research Service, says more bad news is coming. The USDA is forecasting that beef prices will rise 2.5% to 3.5% next year, while pork is expected to go up 3% to 4% and dairy products will face a 3.5% to 4.5% increase. Those forecasts don't even take into account corn's latest jump in price.

"Overall food price inflation year-over-year is still relatively low, but I think the trend is turning around now as commodity prices rise," Leibtag says. "If commodities were to increase or even settle at a higher rate than they've been at the last couple of years, that would put additional pressure on food prices in the upcoming year."

Gary Rodkin, chief executive of ConAgra Foods (CAG), a sprawling Midwestern food producer and maker of such items as Banquet frozen dinners and Peter Pan peanut butter, agrees that rising grain prices mean consumers will soon face higher prices at the grocery store. "Within months, you will start to see prices creep up," Rodkin told Reuters.

The USDA calculates that a 50% increase in corn prices -- roughly what has taken place in the last three or four months -- would raise overall food prices by less than 1%. That's because the corn isn't a direct cost to consumers. Rather, it goes through a chain of feed, cattle and wholesale meat prices before hitting the retail level.

"We'll Be on Edge"

The University of Illinois's Good says the actual corn crop isn't that much smaller than previous years'. Still, prices spiked because the expectations had been for a much larger crop this year. "It turned out to be smaller than expected, but it's not really a failure or a disaster," Good says.

In addition to increasing demand for corn from biofuels like ethanol, U.S. exports of corn have jumped, thanks to grain shortages in places like Russia, where this year's crop was sharply curtailed by a drought.

"Next year, we need the U.S. and the world to have pretty good crops, or this thing could worsen," Good says. "We'll be on edge until we see how the crops develop over the next year."

Meantime, American meat-eaters better bring a little more cash when they hit the butcher shop.

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dblouin

i believe that the real reason the rise in corn prices is because the govmt has approved a further increase in the ethynol (corn gas) from 10% to 15%.

October 18 2010 at 12:32 PM Report abuse rate up rate down Reply
clarissa49

Oh,make speculation in anything illegal!!!!!!

October 18 2010 at 12:12 PM Report abuse rate up rate down Reply
clarissa49

Dept. of Agriculture, quit limiting acreage and providing subsidies for not planting various crops, and quit allowing foreign entities to purchase/lease agricultural land. It would be great to discourage developers from using agricultural land for their projects, too. I am one person that does not believe all the lame excuses for the cost of whatever going up.

October 18 2010 at 12:11 PM Report abuse rate up rate down Reply
bholt

SPECULATORS ON WALL STREET HAVE ONCE AGAIN POCKETED BIG MONEY AND AGAIN THE AMERICAN PUBLIC WILL PAY THE PRICE !!!!!!!!!!!!!!!!!! BOTH THE CVATTLE RAISER AND THE PERSON BUYING MEAT WILL GET SCREWED. ENOUGH !!!!!!!!!!!!!!!! THESE THEIVES NED TO BE DEALY WITH !!!!!!!!! THIOS IS NOT CAPITOLISM, THIS IS A HANDFULL OF PEOPLE GETTING RICH WHILE LEGALLY BEING ABLE TO STEAL !!!!!!!!!!!!!!!!!!!!

October 18 2010 at 11:15 AM Report abuse +2 rate up rate down Reply
impeachosamanov

Osama is stealing from the elderly and disabled by lying that there's no inflation so he doesn't have to give a raise for two years in a row, but anyone with half a brain knows that even under carter and reagan inflation was not nearly as high

October 18 2010 at 10:49 AM Report abuse +1 rate up rate down Reply
jpclarksville

Just another example of brainless government officials putting THEIR needs first. Anyone with half a brain knows that you shouldn't use a FOOD crop for both producing food AND fuel. It's not all that reliable since you're dependent upon the weather and whether or not farmers will plant the corn. They could just hold out and say they won't plant corn unless they get X amount per bushel and say a "planting bonus". Heck, they get paid for NOT growing certain crops, so why not. Also, ethanol has been proven time and time again that it's NOT a good replacement for fossil fuel. Just goes to show what a good lobby the corn growers have. Ethanol can be easily made from grasses etc.

October 17 2010 at 9:54 PM Report abuse +2 rate up rate down Reply
murphyajnjc

This can't be right Obama and the SS big shots keep saying inflation is staying low or going down is this story saying Obama is wrong? Tell me it's not so the great Obama know all just ask him.

October 17 2010 at 6:55 PM Report abuse +2 rate up rate down Reply
lovbuton

Lets produce more ethenol! That way we can raise the price of beef and pork even more. Feed the tank not the people. In this brain dead world it all makes sense.

October 17 2010 at 5:33 PM Report abuse +2 rate up rate down Reply
phdtogo

Raise your own food, buy organic and/or local produce. Free range cattle have little corn in their diet. Wow, I'm a conservative (not Republican) and sound like a LA lib smoking weed. That's because I understand that the ruling classes (The Republocrats) want us controlled and herded like corn-fed cattle on feed lots. The greater the dependence on the "machine" (big business, big ag, Wall Street behemouths) the greater the degree of control.

October 17 2010 at 5:33 PM Report abuse +1 rate up rate down Reply
1 reply to phdtogo's comment
Mike

To eaasy, except for the cattle that voted in this change. Lets take from those that produce and give to those who sit on their A$$s.

October 17 2010 at 6:15 PM Report abuse +1 rate up rate down Reply
DemocracyInPeril

Higher meat prices???!! But...but....but... they told us that the cost of living was flat?? You mean just because home prices have declined, but real estate taxes have increased; that the overall cost of groceries have increased by about 20 to 30%; that healthcare costs have increased about 20%; that the cost of gasoline is inching toward $3.00 a gallon and may hit as high as $5.00 a gallon after the election; that our energy costs have increased significantly; that all taxes, fees, and hiden charges by our state and federal governments have increased....etc. etc. etc. there is no increase in Social Security to seniors....that thet real truth is that inflation ios flat? OHHH OK, I will just ignore all these $ increases in my life...the government would NEVER lie or mislead me.

October 17 2010 at 5:32 PM Report abuse +5 rate up rate down Reply
1 reply to DemocracyInPeril's comment
Mike

This is the change that was voted in. Gotta love it.

October 17 2010 at 6:13 PM Report abuse +2 rate up rate down Reply