Higher food prices coming

Associated Press

Americans should brace for higher food prices this year now that demand for corn has pushed U.S. supplies to their lowest point in 15 years.

Higher projected orders from the ethanol industry sent corn futures soaring Wednesday, as corn supplies became the latest commodity to plummet. Low levels of wheat, coffee, soybeans and other food staples already have sent prices surging on the global market.

As those reserves decline, U.S. food companies are warning of retail price increases.

The ethanol industry’s projected corn orders this year have risen 8 percent, to 13 billion bushels, after record-high production in December and January, the Agriculture Department said Wednesday.

That means the United States will have a reserve of 675 million bushels left over in late August when this year’s harvest begins. That’s roughly 5 percent of all corn that will be consumed, the lowest surplus level since 1996.

The USDA report measures global supply and demand for grains, oilseeds and other crops. The department said its projections for wheat and soybean reserves remained unchanged at historically low levels.

The price of corn affects most food products in supermarkets. It’s used to feed the cattle, hogs and chickens that fill the meat aisle. It is the main ingredient in Cap’n Crunch and Doritos. Turned into corn syrup, it sweetens most soft drinks.

The decline in reserves caused corn futures to surge, with prices rising 3 percent to settle at $6.98. Corn prices already have doubled in the last six months, rising from $3.50 a bushel to nearly $7 a bushel. Analysts expect the price increases to continue.

Major food makers and some restaurants already have said they’ll be raising prices this year because they’re paying more for corn, wheat, sugar, coffee and chocolate, all of which are at historically high prices. Weather, such as flooding in Australia and droughts elsewhere, has affected many crops this year.

A severe drought in China, the world’s largest wheat grower, could force prices even higher. The U.N.’s food agency has warned that the drought is driving up the country’s wheat prices, and now the focus is on whether China will buy more from the global market, where prices have already risen about 35 percent since mid-November.

Consumers likely will see price hikes as early as three months from now, though most of the impact won’t be felt for six more months, said Scott Irwin an agriculture economics professor at the University of Illinois.

Chicken prices are among the first to rise because the bird’s life span is so short that higher feed costs get factored in quickly, he said.

Price hikes for hogs take about a year and cattle two years, while packaged foods take six or seven months to start rising.

Some food makers already began selectively raising prices within the past few quarters.

Those higher prices are filtering into stores. Supermarkets have resisted price increases for some time, hoping to hold onto their cost-conscious customers in the tough economy.

Cereal maker Kellogg Co. said last week it plans to raise prices by 3 to 4 percentage points.

Sara Lee Corp. said Tuesday that it will continue its price increases as it copes with higher commodity costs.

And J.M. Smucker Co. said Tuesday that it would raise prices again on Folgers and Dunkin Donuts coffee for the third time this year, by 10 percent on average.

A large can of Folgers already is going for around $12 at many markets.

It’s not just playing out in the grocery store.

McDonald’s Corp. said last month that it may raise prices this year as its own food tab rises.

The company already raised prices in some markets, including the United Kingdom.