Food Costs Keep Rising

In the midst of a weak economy, high gas prices, falling real estate values, and a slowing job market, we also have to tighten our budget for the rising cost of food. Many have already noticed their grocery bills edging upward; food prices have already risen over 5% this year, increasing at the fastest rate since 1990. And those costs are expected to keep on rising, many types of foods will see another 15% increase in the near future, and another increase of about 5% next year.

Higher energy costs and increased production expenses take much of the blame for the higher grocery bills. The cost of fuel gets pushed down the line to the consumer. And though most of us have been complaining about the high cost of gas, high grocery prices are going to be even harder on the American consumer's budget; the typical household spends about 4% of their income on gas, while spending about 13% on groceries.

World demand has also played a factor in higher prices. As developing countries like China and India buy more corn and soybeans to feed people and livestock, global demand causes the price of these commodities to go up. Gavin Maguire, director of research for the Iowa Grain Company, said that 19% of U.S. corn production is exported. Also, the U.S. is using corn for ethanol production to use an alternative fuel, adding to the demand and justifying the price increase even further.

With increased global demand, the last thing we need for price relief is a short supply, but that's exactly what's going to push grocery prices even higher. A cold, wet spring delayed planting in the Midwest, and the U.S. Department of Agriculture said that only 85% of the seeds sprouted, versus the five-year average of 95%.

To make a bad situation much worse, the June flooding has damaged much of the corn crop in Iowa and Indiana, the country's top corn producers. Gavin Maguire, the director of research for the Iowa Grain Company, believes 10-12% of the expected corn production has been lost, but won't know for sure until closer to harvest.

Corn is an important commodity. Much of our food is made of corn, or made with corn products like snacks, cereal, candy bars, breads, corn syrup, and corn oil. Much of the livestock to produce meat, dairy, and eggs are primarily fed corn for quick weight gain. Our dependency on corn will hit our wallets now that the supply is threatened.



Sources:
boston.com
cnnmoney.com
minnpost.com