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Rising Corn Prices and Your Grocery Bill


Corn prices are nearing the record highs of last summer as the U.S. Midwest suffers its worst drought since 1956. Shoppers should expect higher grocery bills, because corn is used in three-quarters of supermarket products.

But don’t panic. Overall cost hikes are likely to be modest.

“A 50% increase in the price of corn tends to raise total shopping bills by about 1%,” says Ricky Volpe, a research economist with the U.S. Department of Agriculture. Corn’s price has jumped 45% this summer. Of course, even a modest increase to shopping bills is unwelcome news for households on tight budgets.

Strange as it may seem, farm crops aren’t nearly the largest component of food prices. In 2008, just 15.8 cents of each dollar shoppers spent on food went to farms, according to the USDA.  The rest paid for labor, packaging, transportation, advertising and more.

Broken down by industry, food processors, which turn crops into things like cereals, sweets and oils, capture nearly twice as much of consumers’ food spending as farmers, and foodservice companies, more than three times as much.

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The effect of rising corn prices will vary sharply by food, however, based largely on the amount of processing involved. Farms collect just 7% of the retail price of cereal and baked goods, but 14% of ice cream, 37% of butter, and 46% of whole milk. They collect 51% of retail beef prices and 34% of pork.

How high might prices climb? The USDA issues food price forecasts on the 25th of each month. The June forecast (issued when corn was just under $6 a bushel, versus close to $7.80 now) called for price increases of 2.5% to 3.5% this year for food eaten at home, versus a 4.8% last year and a 2.8% yearly increase, on average, over the past two decades. The 2012 forecast includes 4% to 5% increases for beef, 1% to 2% for eggs and 2% to 3% for dairy.

For affected foods, prices should start to rise in about two months, says Mr. Volpe. The first items to be hit will be dairy and eggs, because of the relatively short time between when cows and chickens consume corn feed and those products go to market. Next will be meats, in order of animal size, starting with chicken and leading to beef.

The July 25 forecast will be more telling, because it will take greater account of higher corn prices. It will also reflect a change in the direction of energy prices. U.S. crude oil hit a nine-month low of $77.28 a barrel on June 28, but has since climbed 14%. Energy makes up 3.5 cents of each dollar shoppers spend on food.

Shoppers can make some rough estimates of their own. A bushel of corn is 56 pounds, so with corn near $7.80 a bushel, it costs about 14 cents a pound. It takes 2.6 pounds of corn to produce one pound of steer, 3.6 pounds per pound of hog and two pounds per pound of chicken, according to data collected by the National Corn Growers Association from various meat trade groups. Eggs require four pounds of corn per dozen and milk, 1.8 pounds of corn per gallon.

Food and beverages, including restaurant meals, make up 15% of the money a typical consumer spends, according to the Bureau of Labor Statistics.


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    • I don’t have a lot of knowledge on economics, but as a truck driver, I have a lot of experience hands on with supply and demand. As many other comments I am sure say (haven’t read through them all yet), prices are guaranteed to go sky high. I would myself expect things to near double that are corn reliant. Soda, Tea, Cows, Milk, Eggs, Beer, All Oils, pretty much everything. Its common sense people, if you have 1,000 people, but only enough food to feed 500, the prices go up enough so that the poor can spend their every dime to survive and the rich will just take a diet. They will do their best to keep everyone calm and find a way to survive, and i say, Yes, have faith, but this drought is 3 times worse than the dust bowl that sent us into a great depression. We are a lot more technologically advanced and have a lot more cropable land now though, so I would say it is only JUST as bad as the dust bowl, but that is pretty severe indeed. Time to start that diet, and look on the brighter side… Florida did modestly well this year, which means a lot of healthy produce will still have agreeable prices. Just pray hurricanes down swallow it.

    • Ths is ridiculous . Take the corm out of our food. We don’t need it. It just makes us fat.
      Feed it ALL to the livestock!i

    • So why don’t we get rid of the federal subsidies for corn? I thought most of the people that read the WSJ would be in favor of “smaller government”.

    • Answer: Hunt. You do not have to invest anything into feed. Nature takes care of that. You do not have to be there seven days per week to take care of the livestock. You get away from these massive factory farms that pollute everything. I get all of my meat from nature; red meat, fowl, fish, seafood. And on top of that I have never eaten dog.

    • Alan,

      What I saw was the VEETC was translated into a reduction in the price of the finished fuel because the rack price of e10 was X, and the invoice to the final customer received a discount nearly the same as the value of the credit, with perhaps a small holdback to pay the credit paperwork that had to be filled out on the 720 or the other form that I can’t remember. If the blender of record and the customer was the oil company, then yes, the VEETC went to that oil company.

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