Food Prices and Weather

Midwest Floods Have
Little Impact on Food Prices
There is no doubt that weather affects food prices. When Florida experienced freezing rain that destroyed citrus trees, the price of oranges jumped 20%. The flooding in Illinois and Iowa isn’t so… well, cut and “dry” though.

The flooding has hurt thousands of corn and soybean acres– two commodities that represent small amounts of food costs. For example, there is only 6¢ of corn in a 12 oz. box of corn flakes. Even if the price of corn would double due to shortage, there would only be 12¢ of corn in a box that retails for $3.00.

Many news sources are also speculating that the flooding will rock meat prices, too, because the price of corn used to feed cattle and hogs will increase due to the shortage. Often, changes in the price of corn have no direct relationship to changes in the retail price of meat and milk, and history has shown this. For example, between November 1994 and July 1996, the farm-gate price of corn more than doubled due to declines in corn acreage and yield, yet the price of ground beef, pork chops, and whole chicken rose only moderately or declined.

Between August 2000 and April 2004, the farm-gate price of corn again nearly doubled, and again during this period the price of pork chops dropped, while the prices of whole chicken and milk rose very modestly. A different scenario occurred from July 1996 to August 2000, when corn prices collapsed. Under today’s mainstream rationale, one would have expected retail prices to fall, too, yet the retail price of meat and milk actually rose. The same thing happened between May 2004 and November 2005 when corn prices fell again, yet retail prices for meat and milk rose.

These numbers are true for corn used for ethanol production. too. While the price of corn increases, it has very little impact on the actual price of most foods. President Bush’s Council of Economic Advisors estimates only 3% of the increase we’ve seen on world food price is due to the increased demand from ethanol. (Watch USDA video)

Sources
USDA
Michigan Farm Bureau