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How Higher U.S. Food Prices in 2013 Will Starve the Global Economy

By Diane Alter, Contributing Writer, Money Morning - August 10, 2012

The epic drought - the worst in 56 years - that has wreaked havoc on more than half the United States is setting up 2013 to deliver record-high U.S. food prices that will affect more than just our grocery budgets.

As the drought continues to kill crops throughout the Midwestern U.S., a region known as the "corn belt" because it produces 40% of the world's crop, the problem reaches farther than the dry U.S.

Now the United Nation's Food and Agricultural Organization (FAO) warns that if countries, including the United States, restrict exports on concerns of higher grain prices, the world could face a kind of food crisis like the one seen five years ago.

"There is potential for a situation to develop like we had back in 2007/08," Abdolreza Abbassian, FAO's senior economist and grain analysts told Reuters. "There is an expectation that this time around we will not pursue bad polices and intervene in the market by restrictions, and if that doesn't happen we will not see such a serious situation as 2007/08. But if those policies get repeated, anything is possible."

Abbassian added, "The very strong appreciation of the dollar, and the surge in prices, is basically a double blow which is going to be quite stressful for some of the more fragile countries."

Related: Higher food prices are just one part of a fascinating but frightening global trend that will restrain our most vital resources, as well as your finances - unless you're prepared.

Rising Food Prices Stall Economic Recovery

The FAO Food Price Index jumped 6% in July after three months of declines. Grain markets got a boost from speculation that Black Sea grain producers, particularly in Russia, might levy export restrictions after a drought there walloped crops.

A study conducted last year by the National Center for Atmospheric Research, based on some 70 years of weather data, found that from heat waves to cold snaps to droughts, weather could cause up to a 1.7% rise or fall each year in the U.S. economy's gross domestic product. In 2011, not counting extreme weather events like tornadoes or hurricanes, the amount was $507 billion.

Jeff Lazo, one of the study leaders, told USA Today that the findings are significant "especially when GDP is growing a percent or so a year, if that."

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U.S. Food Prices 2013: How to Profit from the Pain

By Larry D. Spears, Contributing Writer, Money Morning - August 2, 2012

Rising U.S. food prices in 2013 are about to send U.S. consumers' grocery bills to new highs.

You see, the United States is in its worst drought since the Dust Bowl. Brutal heat waves and barely any rain have crippled farms across the country.

The U.S. Department of Agriculture (USDA) on July 25 issued a report warning every American to expect to pay 3%-4% more for groceries in 2013. That follows a 3.7% food price jump in 2011, and 3.5% expected in 2012.

"The drought is really going to hit food prices next year," Richard Volpe, a USDA economist, told Reuters. He said the pressure on food prices would start to build in 2012.

"It's already affecting corn and soybean prices," Volpe said, "but then it has to work its way all the way through the system into feed prices and then animal prices, then wholesale prices and then finally, retail prices."

Beef prices will be hit the hardest, as they are expected to rise 4%-5%, followed by dairy 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.

But consumers don't have to succumb to the higher prices. You can actually profit from this trend by investing in these rising costs.