U.S. Drought to Boost Food Prices Through Next Year

WOODLAND HILLS, Calif. -- The drought epidemic impacting much of the United States will result in overall higher food prices in the coming months and well into 2013, according to analysts with the Great American Group. Beef and dairy products, in particular, will be affected as they are expected to post substantial increases with the cost of corn continuing to rise.

"The drought has caused a state of alarm in the food industry," said Ken Bloore, chief operating officer of Woodland Hills, Calif.-based Great American Group's Advisory & Valuation Services division. "A continued lack of rain in the U.S. will be detrimental to crop development. This will result in a tightened supply and higher prices for raw materials, livestock, feed and crops, which could impact gross margins for companies throughout the industry."

The dry spell has impacted nearly 60 percent of the continental United States, representing the largest drought area to plague the country since the 1930s and 1950s. With cows starving from lack of pasture, and farmers faced with the additional challenge of increased corn prices, the meat and dairy markets will be particularly impacted by this trend. As corn is a primary food source for cattle, there is great concern that farmers will be unable to maintain their animals in the coming months, the analysts noted.

According to U.S. Department of Agriculture (USDA) estimates, overall food prices are expected to increase 2.5 percent to 3.5 percent through the year's end, with increases expected in all categories. Grocery store prices are on track to increase between 2.5 percent and 3.5 percent as well, while restaurant prices are predicted to rise by 2 percent to 3 percent.

Any increases may be magnified by the length of the drought period, which experts predict could continue into the foreseeable future.

Great American Group's newest quarterly Food Monitor is now available on the company's website.