990744 U.S. Food Prices Cool Despite Heat Wave

Chicago - Extreme heat in the eastern United States that has hurt some crops is not expected to raise food prices, but price spikes are possible if scorching heat spreads to main crop and livestock areas.

Prices of corn, wheat and soybeans earlier this month had been hovering at the lowest prices in years. But last week, a prolonged heat wave from New England to Ohio began to concern grain traders and sent Chicago Board of Trade grain prices soaring. Grain prices eased back somewhat on Monday as forecasters predicted moderating temperatures and some rain across the Midwest.

Analysts said weather jitters are fairly normal in grain markets, but it would take a lot more than the current hot weather outlook to boost food prices sharply.

“Unless there is a dramatic change in the weather in the Midwest, there'll be no significant increase in food prices,” Darrel Good, professor of agricultural economics at the University of Illinois, said.

Good said changes in the cost of packaging, transportation and energy had a bigger impact on retail prices than the cost of raw materials such as corn, soybeans and wheat.

“The impact of crop prices on things like bread and cereals are pretty slim,” said Rich Pottorff, chief economist at St. Louis, Missouri-based Doane Agricultural Services.

That said, analysts noted that a genuine drought can have a real impact on food prices. The U.S. consumer price index for food rose 5.7% in 1989, compared with 4.0% in 1988, after a widespread drought damaged U.S. food crops.

Crop specialists in Ohio, which produced about 5% of last year's 9.7 billion bushel U.S. corn crop, predicted last week that this year's yields would suffer from the lack of rain. However, New England and the Atlantic Coast states, which have been hard hit by the heat, are not significant producers of key food crops.

Most corn and soybeans are grown in the Midwest -- Illinois and Iowa combined produce about a third of all corn and soybeans -- while more than half the U.S. wheat crop comes from the Plains states from North Dakota to Texas.

“We have a team of guys out in the fields right now on a crop tour in Illinois, Indiana and Ohio, and they are finding that the crop is not as stressed as the market thinks it is,” Pottorff said.

Earlier this month, corn prices fell to 11-year lows and soybeans to 27-year lows on the outlook for bumper crops in the United States, slow exports and rising stockpiles. Wheat prices were hovering around last fall's 21-year lows.

Harry Baumes, senior vice president for industries and agriculture at consulting firm WEFA Inc., said the cost of raw materials such as corn, soybeans and wheat has declined steadily as a proportion of the retail price of food.

He said raw material costs declined last year to 22.2% of the retail price, from 25% in 1996, and was likely to fall to around 20% this year.

One sector that could see firming prices was dairy. New England remains a dairy producing center, though not as dominant as Wisconsin or California.

Jerry Dryer, president of Chicago-based JDG Consulting, said the extreme heat in the eastern United States coupled with the robust economy was working to take cheese prices higher.

“The cows have been stressed by the heat and are producing less milk while more people are eating out because of the economy, so cheese prices are higher,” he said, adding that this would lift milk prices in two to three months.

This Article Compliments of...