This summer, the United States has slogged through its worst drought in half a century, causing corn and soybean crops to wilt across the Midwest and Great Plains. The effects appear to have been dramatic at first glance: Corn prices have shot up 60 percent since June. Soy prices have risen by more than one-third.
And yet, as agricultural economist Michael Roberts explains, this isn’t likely to pose a crippling problem for most consumers in the United States. The USDA estimates that U.S. food prices will increase just 3 to 4 percent in 2013. Mostly, it’s a nightmare for poorer, developing countries.
Over at his excellent blog “Greed, Green, and Grains,” Roberts explains why the rise in corn prices will have such a small impact on things like the price of beef or chicken at the grocery store:
Take meat, for example. There are only 3-5 pounds of corn used to make an additional pound of beef, and between 2 and 3 pounds of corn for a pound of chicken or pork. The calculation isn’t particularly straightforward, but these numbers are probably about right “on the margin,” as economists like to say. This can vary a bit from operation to operation or how it’s measured, but feed use efficiency has risen a lot over the last couple decades with the growth of confined animal feeding operations, or CAFOs.
Let’s says 5 pounds of corn per pound of meat. There are 56 pounds of corn in a bushel and since June prices have increased from about $5 to about $8 per bushel. This means the amount corn in your quarter-pound burger have increased from about 11 cents to about 18 cents. If there is market power by processing companies or retailers, retail prices would go up by less than this amount (this is basic microeconomics, but I’ll save the details for another time). So, you’ll have to squint to see the effect of this year’s drought on prices at grocery stores and restaurants.