Your Summer Forecast: High Temperatures, Higher Food Prices
byJul 16th 2012 8:27AM
That unrelenting sun that's been scorching your lawn and testing the performance limits of your air conditioner? It might be sending your grocery bill soaring soon as well.
Citing record-breaking heat and reduced rainfall, on Thursday the Department of Agriculture cut its corn crop forecast to levels not seen since the drought of 1988.
And if you're thinking that you really don't eat much corn, so you don't have anything to be worried about, think again. Corn goes into so many of the foods we buy that shortages can end up having a greatly magnified effect, one that can push food prices higher across the board.
Corn: It's in Everything
The majority of corn grown is fed to livestock, including chicken and cattle. As it gets more expensive to feed those animals destined for the slaughterhouse, the end-product chicken nugget or hamburger patty gets more expensive as well.
The much-derided high-fructose corn syrup is the most common sweetener in sodas such as those sold by Coca-Cola (KO) and PepsiCo (PEP), and is even the main sweetener in H.J. Heinz's (HNZ) ketchup. Corn is also used in the production of many whiskeys, home and commercial cooking oils, and ethanol.
Corn starch is a staple thickener in cooking and is also used now in the manufacture of biodegradable plastic. Corn germ can even be used in the manufacture of industrial glue.
And all this is really just the start. Corn is America's biggest field crop, and is pretty much everywhere in our lives.
No Relief in Sight
The U.S. exports more corn than any other country in the world: It's one of the world's staple crops, along with soybeans, wheat, and rice. As such, the global commodities markets keep a close eye on what the USDA reports in its monthly estimates.
According to The Wall Street Journal, this drought and heat wave are hitting the corn crop at a crucial time, just when rain is most needed in the corn plant's growth cycle. And don't expect relief from the heat in the near future. For the northern two-thirds of the U.S. -- which includes most of the country's corn-growing regions -- a recent National Weather Service outlook called for continued higher-than-normal temperatures.
Unfortunately, it's not just corn that's being affected by the heat and lack of rainfall.
The USDA also expects a reduced soybean crop for this year. As previously mentioned, soy is one of the world's staple crops, and like corn, one way or another, a bit of it ends up in almost everything we eat. Shortages in these two important crops are generating fears of a new global food crisis.
Time to Stock Up?
There have been two food crises in recent memory, one in 2007-2008, and another in 2011. But because the world's supply of wheat and rice seem to be at normal levels at the moment, most policymakers believe we're not headed toward another full-blown crisis just yet.
In the meantime, as you try to stay cool during the next few weeks running between air-conditioned buildings, and as you sweat over the final tally of your next trip to the grocery store, here's something to ponder: Front lawns are overrated. You might want to plant corn instead, and try as hard as you can to keep it well-watered.
John Grgurich is a regular contributor to The Motley Fool, and holds no positions in any of the companies mentioned in this column. The Motley Fool owns shares of PepsiCo and Coca-Cola. Motley Fool newsletter services have recommended buying shares of H.J. Heinz, PepsiCo, and Coca-Cola. Motley Fool newsletter services have recommended creating a diagonal call position in PepsiCo.