Consumer costs rise

By The Associated Press

NEW YORK — Cornflakes won’t necessarily be more expensive as a result of rising corn prices, but the milk you pour over them might be.

A drought covering two-thirds of the country has damaged much of the country’s corn crops and pushed grain prices to record levels, triggering fears that a spike in food prices will follow.

Many factors determine the price of goods on supermarket shelves. A diminished corn supply doesn’t mean all food prices will be affected the same.

In fact, you’re more likely to see higher prices for milk and meat than corn on the cob. That’s because the sweet corn sold in a grocery is grown differently and is not as vulnerable to drought conditions.

As for the corn used as grain feed for cows, farmers are paying more as the drought persists.

“The financial stress is starting to mount because the bills (to feed the cows) are bigger than they were six months ago,” said Chris Galen, a spokesman for the National Milk Producers Federation. “What will consumers will see as a result? That’s where it gets a little murkier.”

One major factor that complicates the equation is the amount supermarkets decide to mark up foods. Supermarkets are facing stiffer competition from big-box retailers and drug stores, so they’re being much more judicious about how much of their rising costs they pass on.

Nevertheless, the Agriculture Department said last week it expects grocery prices to rise 3 percent to 4 percent next year, slightly higher than normal.

Here’s a look at how different foods will be impacted:

Meat and dairy
In addition to paying more to feed cows, farmers are dealing with grazing pastures that have been baked dry. The combination has farmers selling off the animals they can’t afford to feed, particularly since cattle supplies are already limited and beef prices have been climbing steadily in recent years.

Beef from those animals streaming into auction yards is expected to start showing up in grocery stores in November and December, temporarily driving down meat prices.

“The irony is that we could start seeing some price reductions in the short run,” said Bruce Jones, a professor of agricultural economics at the University of Wisconsin.

By early next year, however, prices are expected to spike as a result of the smaller livestock herds and dwindling meat supplies.

Already, the number of cattle in the U.S. has been dropping for years. The USDA said this month that the nation’s cattle inventory was the smallest since the agency began an annual count in 1973.

Next year, the USDA says beef prices are expected to jump 4 percent to 5 percent, making it among the biggest price hikes for food. Dairy product prices are expected to climb 3.5 percent to 4.5 percent; poultry and egg prices up 3 percent to 4 percent; and pork prices up 2.5 percent to 3.5 percent.

Fruits and vegetables
Produce sold in supermarkets typically is irrigated by farms and not as affected by dry conditions.

In addition, supermarkets import many of their fruits and vegetables from other countries — such as bell peppers from Holland. They can keep supplies and prices in check even if one source isn’t producing a large amount.

Fruits and vegetables also are a loss leader for supermarkets: They’re often sold at a loss in hopes of attracting shoppers who will spend on other items, said Lisa Schacht, president of the Ohio Produce Growers and Marketers Association.

At farmers markets where consumers buy directly from growers, a spike in prices might be more pronounced. That’s because the relentless heat is making it harder to grow certain fruits and vegetables.

As for the ears of corn sold at supermarkets, there shouldn’t be a huge spike in prices. The sweet corn people eat typically is irrigated like other fruits and vegetables. And while the drought is pressuring farmers, it’s not to the same severity as the corn fields that produce animal feed.

Overall, the USDA projects an overall 2 percent to 3 percent price increase for fruits and vegetables next year. That’s in line with this year’s increase.

Packaged foods
Another worry is that the price of many packaged foods containing corn or corn ingredients will climb. High-fructose corn syrup, for example, is used in foods such as cookies, yogurt, cereals and spaghetti sauces. A can of regular soda contains 40 grams of the sweetener.

The corn ingredients used in packaged foods mostly aren’t irrigated either, meaning they’re vulnerable to the vagaries of weather and price fluctuations.

But such ingredients often are a tiny fraction of the costs that go into packaged foods. Among the many expenses food makers such as Kellogg Co. and Kraft Foods Inc. also have to foot: packaging material, labor, advertising and fuel for trucks to get their products in stores.

Based even on today’s high corn prices, a 12-ounce box of cornflakes would have only about 8 cents worth of corn, said Paul Bertels, vice president of production and utilization at the National Corn Growers Association. That’s a very small portion of the $4 or so price of that box of cereal.

“When you look at final food products, the more processing there is, the less significant the price of the raw materials,” Bertels said. “A lot of it is advertising and marketing.”

Food makers have other ways of managing their costs, such as cutting back on how much they put in a package. Even before the drought, PepsiCo Inc. said that earlier this year it put fewer chips in its Frito-Lay bags as a way to offset higher ingredient costs.