Midwest drought to hit home with higher food prices

The government expects food prices to climb 3 to 4 percent next year because of higher meat prices.

By Melissa Allison

Seattle Times business reporter

Costco Wholesale already is paying more for chicken.

It hasn't passed the increase on to customers yet, but the federal government says consumers will pay 3 to 4 percent more for food next year — largely a result of the drought in the Midwest, which has decimated a corn crop used to feed chickens, pigs and cows.

"Pork will be next. Beef can take longer," said Jeff Lyons, Costco's senior vice president of fresh foods.



The worst drought in decades is expected to reverberate in the meat-consuming public's pocketbook, as fewer animals and more expensive feed crops rock the economics of the cattle, pork and poultry industries.

Many are bracing for higher prices, but how high they will go remains unknown while the drought and its impact, along with other food-price variables, play out.
Chicken suppliers have tried to pass along their entire 7 percent cost increase, but Issaquah-based Costco agreed to pay only part of it.

"They're trying to get healthy all at once," Lyons said, "and we said, 'We can help you right now and then see what takes place. The corn is not even in the barn yet.' "

If the government curbs its plans for ethanol production, for example, there will be more corn to feed livestock, he and others said. And if the corn harvest in Latin America is strong, corn prices could drop — sending chicken and pork down as well.

A longer-term problem could be the cattle supply.
Their numbers are already low from years of ranchers getting out of the business and a lingering drought in Texas and Oklahoma. The past 15 years have seen a 10 percent drop in the number of cattle and calves — to 97.8 million animals, the lowest in decades.

With the price of feed skyrocketing, ranchers are selling cows earlier than they wanted to avoid pouring more money into them — and increasing the supply of cattle takes longer than it does for chickens or pigs.

Ranchers also are selling heifers for slaughter. Rebuilding the supply of mother cows will take even longer than simply raising new calves.
The short-term result is a glut of fresh beef, which sent prices down this summer.

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