Midwest Floods May Add to Already High Food Prices

The cost of everything from corn chips to beef steaks was going higher even before the disastrous floods hit millions of corn and soybean acres in the U.S. Midwest, and now food price increases may be even greater, industry sources said.

Torrential rains over the past week and the worst floods in 15 years have badly hit the U.S. Midwest, which directly or indirectly produces much of the nation's food.

Water pours out of the Coralville Reservoir emergency spillway onto road, Johnson county, Iowa City, Iowa.
Water pours out of the Coralville Reservoir emergency spillway onto road, Johnson county, Iowa City, Iowa.

The corn and soybeans grown there are used in processed foods and are fed in some form to the cattle, hogs, and chickens that produce the nation's meat.

"Given that grain supplies are already tight, this flood comes at a bad time and is going to push the major grain crop prices up rapidly. Over a longer time, that will have an effect on supermarket prices as well," said Parke Wilde, economist at Tufts University.

The price of corn jumped 22 percent this month as fears over the damage to crops by the incessant rain grew, and is up about 90 percent from a year ago at record highs.
Meat prices are expected to go higher as producers reduce herds or flocks in reaction to higher feed prices.

Cattle futures in Chicago already set a record Tuesday as the April 2009 contract hit 116.875 cents per lb, the highest price ever.

Prior to the flooding, the U.S. Agriculture Department predicted food prices would be up 5 percent this year. Experts say it is too early to estimate to what degree the flood will impact food prices.

Worries mounted Tuesday after a levee protecting farmland in Illinois near the swollen Mississippi River broke, adding to the damage.

"Right now, we are still hearing anecdotal reports on how bad it is, and it is very bad, but until we know for sure how much production capacity we have lost this year, it is hard to say where prices are going," said Gary Thayer, senior economist at Wachovia Securities.

At Jim's Quality Meats' store in the Chicago suburb of Darien, meat prices are up about 20 percent from a year ago and more increases are likely.

"Prices are going up. Not drastically, but they are going up. Pork has definitely gone up and chicken is starting to creep up, and beef is on its way up," said owner Ed Wedell. "It is a big concern with what is going on with gas prices and now this huge flood now in Iowa," he said.

Much of the price increases already on store shelves are related to the sharp jump in prices for corn, soybeans, and wheat in the past year and to higher fuel costs.

Consumers will likely complain as prices go even higher, but the causes for the increases are largely uncontrollable.

"I bet you will hear an outcry, but I don't think there is much the government can do," said Tuft's Wilde.

Consumers will adjust eating habits such as eating less at higher-priced restaurants or eating at home more, said Harry Balzer, vice president of the consumer research firm NPD Group.

"The first thing they will adjust is the food budget," he said. "The high-priced meat will be replaced by low-priced meat."

Balzer estimates 50 percent of the consumer's food dollar is spent at restaurants, and the balance is spent eating at home.

During periods of higher prices, much of eating out percentage will be spent at lower cost restaurants, he said.