Higher U.S. food prices are the last thing the country needs as 2013 is set to bring with it a painful bunch of tax increases and the ominous fiscal cliff, but U.S. consumers need to understand that their grocery bills are about take a much bigger chunk out of their wallets.
You see, the United States is in its worst drought since the Dust Bowl. Farmers for months have been grappling with the effects, which are trickling down to your local store shelves.
"In 2013 as a result of this drought we are looking at above-normal food price inflation," U.S. Department of Agriculture (USDA) economist Richard Volpe told the Associated Press. "Consumers are certainly going to feel it."
U.S. Food Prices Soar Across the BoardThe USDA on July 25 issued a report warning every American to expect to pay 3%-4% more for groceries in 2013.
Beef prices will be hit the hardest, as they are expected to rise 4%-5%, followed by dairy product prices which could climb 3.5% -4.5%. Poultry and egg prices in 2013 are projected to go up 3%-4% and pork prices 2.5% to 3.5%, the agency said.
The warm weather in the winter months had given hope to the idea that farmers would have great crop production this year. But those hopes were erased as brutal heat waves and barely any rain crippled farms across the country.
"This drought was a surprise for everybody," said Volpe. "The USDA was forecasting a record year for the corn crop until this drought materialized. Now we're not going to get that."
The drought now covers around 60% of the continental United States, the largest area since the catastrophic droughts of the 1930s and 1950s.
The drought comes as farmers deal with less and less available farmland.
"Over the last 25 years alone, America has converted over 41 million acres of land into condos, strip malls, and other developments," noted Money Morning's Global Energy Strategist Dr. Kent Moors. "Add it up. You've got higher food prices, higher fuel costs, more people, and less land to use for growing food."
Drought Dries Out U.S. StocksThe pain from higher food prices isn't just hitting your household expenses, but is also damaging some food-related companies.
One of the worst hit sectors from the drought is restaurant stocks. Faced with rising food prices companies reported earnings that were well below estimates.
Chipotle Mexican Grill Inc. (NYSE: CMG), McDonald's Corp. (NYSE: MCD) and Buffalo Wild Wings (NYSE: BWLD) each suffered last quarter as input costs and higher prices took a toll on earnings.
Shares of CMG plummeted more than 20%, BWLD dropped over 10%, and MCD fell almost 3% within a day after reporting earnings.
"We are now somewhat more concerned about the commodity-cost outlook for Chipotle than we were 24 hours ago," Janney Capital Markets analyst Mark Kalinowski told Forbes after Chipotle reported earnings. He downgraded the stock to "Neutral" from "Buy."
Each of these companies has responded by saying they will raise prices, which once again comes back to hurt the consumer.
One company that has profited as U.S. food prices rise is Monsanto Co. (NYSE: MON) due to its drought-resistant corn products. Monsanto just reached a 52-week high of $87.77. At the end of June the company reported a 35% increase in its third-quarter profits compared to last year and raised its outlook for the remainder of 2012.
While the drought will negatively affect the entire farming business Monsanto should be able to rise above its competitors and perform well even in the uncertain times ahead.
Higher U.S. Food Prices: The New Normal?U.S. households need more than an ag stock to protect against the looming problems related to food prices.
In fact, food price hikes are part of a bigger disturbing pattern that Dr. Moors, Money Morning Chief Investment Strategist Keith Fitz-Gerald and a team of researchers has recently uncovered.
Moors, Fitz-Gerald and colleagues found that the world's astounding population growth is going to cause a substantial drain on the world's environment, energy and economy.
"The United Nations' future population estimates form a near-perfect exponential growth curve. And it shows you that we're well on our way to a tipping point here. More people put a larger drain on our energy needs. They require more food, more money, more everything," said Fitz-Gerald.
The effects population growth will have on the resources we take for granted are frightening.
Luckily, there are ways to prepare for higher food prices. Just check out this team's fascinating research.
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