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Drought-damaged corn is Lawrence, Mich., last week. In a skittish market, the price of corn, has jumped 50 per cent since June. (Robert Ray/AP)
Drought-damaged corn is Lawrence, Mich., last week. In a skittish market, the price of corn, has jumped 50 per cent since June. (Robert Ray/AP)

food prices

U.S. drought will continue to scorch consumers Add to ...

Grocery costs, already on the rise, will climb even higher next year in the wake of the devastating drought in the U.S. Midwest.

Food could climb between 2.5 and 3.5 per cent in 2012 and between 3 and 4 per cent in 2013, according to the United States Department of Agriculture, as the price of corn, a key to producing livestock in North America, has jumped 50 per cent since June.

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The spike in commodity and food prices highlights just how skittish the global food market has become.

While the U.S. drought, which Canadian farms largely escaped, is the worst in decades, the corn harvest is still expected to be one of the largest on record.

North American consumers are expected to adjust to rising prices, but the chain reaction started by crop failures will hammer developing countries.

“It is well accepted [the drought] is going to result in a material food inflation in 2013,” Michael McCain, Maple Leaf Foods’ chief executive, said in an interview Wednesday as the company released quarterly results.

“It usually affects the entire food supply.”

Mr. McCain expects the trend to last at least 18 months, although it is difficult to precisely predict how today’s commodity prices will affect the cost of food.

“It is a fluid situation. The crops are still in the ground,” he said.

“We don’t know the extent or the timing of any price increases at this stage.”

Rising corn and wheat prices are the most influential when it comes to Toronto-based Maple Leaf’s costs, he said.

Soybeans, however, also play a role.

“Our response largely, as it has been in the past, is to focus on as much as possible expense and cost production, but mostly responsible pricing in the marketplace ... Raising prices that are responsible relative to the increase in raw material costs.”

The price of food climbed 2 per cent this June, compared with June, 2011, according to Statistics Canada.

Fresh and frozen meat cost 5.9 per cent more in the same period, while fresh and frozen poultry jumped 3.8 per cent.

Bakery and other cereal products cost 1.7 per cent more.

Evan Fraser, a professor in the department of geography at the University of Guelph, believes the commodity market has overreacted to this summer’s bad weather in the United States.

The USDA in July said it expects American farmers to produce 12.97 billion bushels of corn this year, down from its previous record prediction of 14.9 billion bushels.

“This is still an enormous amount of corn we’re talking about,” Mr. Fraser said.

“Probably the third- or fourth-largest harvest of corn in human history.

“Even five years ago, this would have been seen as a glut.”

Given the billions of bushels the USDA still expects to be harvested, this summer’s record corn price is “totally an overreaction,” Mr. Fraser said.

“This illustrates how sensitive the modern food system is to bad weather ... Our commodity system is hyper-sensitive to droughts.”

Food prices have been climbing for years, and have made moves in the recent past.

Food climbed 3.7 per cent in 2011, according to Statistics Canada, 1.4 per cent in 2010, 4.9 per cent in 2009, and 3.5 per cent the year before that.

As a result, North Americans are expected to easily absorb the rising cost of food.

“It is a significant price change, but it is not earth-shaking for most consumers to handle a 3- or 4-per-cent increase,” Mr. Fraser said.

Developing countries, however, will not be as fortunate.

The World Bank is preparing for food emergencies, though it does not believe the world has reached a crisis point.

Maple Leaf made $35.5-million or 21 cents per share in the second quarter, up from $24.6-million or 17 cents per share a year earlier.

Its Canada Bread division earned $26.8-million in the quarter, up from $14.9-million.

 
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