Droughts impact expected to be felt in New England
By ERIN AILWORTH
The Boston Globe | August 20,2012
The drought that has hit much of the nation, including parts of New England, is expected to drive up food and gasoline prices in the coming months, further squeezing cash-strapped U.S. consumers.
While Vermont has avoided the worst of the drought, it could still feel the effects. Higher feed prices would hurt Strafford dairy farmer Earl Ransom, adding to the squeeze from a 5 to 10 percent drop in milk production because his drought-stricken pastures aren’t yielding as much grass for his cows.
Ransom, who owns Rock Bottom Farm, usually spends about $40,000 to $50,000 on feed a year. But with grain costs projected to rise 25 to 30 percent, he expects to spend roughly $75,000 this year.
His wife, Amy Huyffer, said that if grain prices continue to climb, dairy farmers will have to pass on the costs to consumers, who could see an increase of 25 to 30 cents per gallon in milk’s retail prices in the future.
Recent rains, however, have provided some relief.
“I’m cautiously optimistic that things will almost be OK,” Ransom said. “That rain brought us back from what was looking like it was really bad.”
With nearly two-thirds of the nation in drought, the U.S. Department of Agriculture recently slashed its estimates for corn and soybean production. Both are key crops in the U.S. food production chain — used in livestock feed, oils, and sweeteners — so when their costs rise, so will prices for other foods.
Corn is also used to make ethanol, which is blended in gasoline, so expect higher prices at the pump, too.
The impact of the drought will take several months to reach supermarket shelves, but food prices could rise an average of 3 to 4 percent next year, according to the USDA.
Average food prices in July, nationally, were 2 percent higher than a year ago, after jumping 4 percent in 2011, according to the U.S. Labor Department.
Grocery chains like Hannaford, Price Chopper and Shaw’s say they are monitoring the situation, worried that further increases in food prices could lead consumers to pull back further on spending.
The drought represents another hit for consumers and the U.S. economy, which counts on consumer spending for more than two-thirds of its activity. The impact, however, will reach well beyond U.S. borders, since the United States is the world’s leading producer and exporter of corn, the feed stock of so many food products. Prices for the commodity have risen roughly 60 percent since June.
“That means higher prices for everybody,” said Nigel Gault, chief economist for the forecasting firm IHS Global Insight.
Beef and veal prices nationally are expected to rise between 4 and 5 percent next year. Restaurants like the Smith & Wollensky steakhouse chain, headquartered in Boston, are already considering options to deal with the rising costs. Corporate chef Matt King said the chain’s current contract for beef runs through mid-January so restaurant prices should remain stable.
But if prices remain on the rise after that, King said, the chain will look to see where it can absorb costs or tweak its menu to include more seafood before upping its prices.
Analysts say the drought will also have an impact on gasoline prices because the fuel is partially blended with ethanol made from corn. Phil Flynn, an analyst at The Price Futures Group in Chicago, said he expects higher corn ethanol costs to add 5 to 6 cents to gas prices.
Ultimately, the only real fix for the drought will be rain and cool weather, which has been a bit more abundant recently in New England. Drought conditions in parts of the Midwest and Southeast have also eased this week.
Brad Rippey, a meteorologist for the USDA, said cooler, wet weather makes it seem as if the nation has “turned the corner on this drought.” But he said many areas still need a good soaking in the next few months. In some of the hardest hit areas, rainfall has been more than 10 inches below average.
The latest forecast from the National Weather Service predicts that the drought will continue and even intensify across much of the United States through November. The drought, Rippey said, could extend into next year.
“There is the distinct possibility that we could be dry in certain geographic parts of the Midwest in 2013,” Rippey said, and “they really can’t afford another mild, dry winter.”