Wholesale prices can facilitate soon despite drought

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AFP

The drought-stricken corn grows in Missouri Valley, Iowa. Corn prices rose to record highs.

Although drought conditions have raised the cost of food this summer, consumers may have seen the worst effects of price in the supermarket.

Higher food prices helped, which watched closely producer price index by 0.3 percent in July, to lift the fastest pace in five months. At the same time, 0.8 per cent, which first increase signaled in four months and well ahead of expectations, that the dynamics of the sluggish economy may be picking up increased the retail sales.

The increase in producer prices was partly driven by a leap into the light truck prices, up 1.6 percent, and pharmaceuticals, 0.9 percent. In the supermarket prices wholesale rose a sharp 0.5 percent in July on the same price increase in June. More than half, according to the Government this crack is due to higher prices for beef and veal, which climbed 3.8 percent.

But with pet owners facing steep increases in the cost of feed grain prices meat may soon reverse course according to Michelle Girard, an economist at RBS.

Find our complete drought coverage here. And on the Wednesday, 15 Aug., NBC News, CNBC, MSNBC, the weather channel and Telemundo watch for all-day, network-wide coverage of the drought.
"Because it is so much more expensive to keep and to feed them, you actually get prices pressure can have more cattle brought to slaughter, so actually beef in the very near future," she said.

This fall in prices to slow down, and the drought impact on pet owners, House announced in the white on Monday, $170 million of meat and poultry to buy the Federal Government. The increased demand generated by the Government helps offset of the expected security of supply as cattle producers rush their flocks, battles to avoid spiking feed costs glut.

Corn and soybean crop forecast drastically cut were last week after the worst drought in 50 years, millions of hectares of harvest destroyed. Corn prices hit record levels of almost $9 per bushel last week. Wheat and soybeans hit also multi-year highs.

But accelerations are expected as demand starting with the pet owners who are trimming herds to facilitate these tips. With a view to increasing corn prices ethanol producers production have scaled back.

And foreign plantations have spurred rising prices of the harvest in recent years, that the impact of this year's deficit in the United States Stump can, according to a recent report on the drought economic impact from the Federal Reserve Bank of Kansas City. Since 48 million acres of the crop production has in 2003 such as the former Soviet Union and South American Nations have planted an additional 42 million hectares, according to the report.


"High prices further expansion in global production, which could lead to lower prices could lure", according to the report. "The best remedy for high prices may be high prices."

U.S. consumers are are shielded from the recent sharp spikes in the prices of grain because the cost of these commodities make up a relatively small proportion of the total cost of the finished food. Raw materials such as corn and wheat of the retail make approximately 14% cost for food, according to the USDA. The rest of the price written represents on the supermarket shelf, processing, packaging, shipping, marketing and other production costs.

The Kansas City fed report estimates that the year's drought next year can add to retail food prices 4 percent. As the consumer price index is the cost of food, about 14 per cent, the drought would contribute, only 0.6% to total inflation economists after Kansas City fed.

Consumers facing higher food prices are also getting some relief from the last fallback in gasoline prices. Energy prices fell 0.4 percent in July for the fifth month in a row, after the Government inflation report. Wholesale gasoline prices fell by 3.1 percent last month.

Sparked the rise in corn prices summer calls for waiver of the Government mandates and subsidies for the promotion of ethanol from corn. About 40 percent of the U.S. corn is diverted to produce the gasoline additive, this throws fuel octane and reduces air pollution.

But a waiver on this mandate unlikely - especially because refineries to cope with torn with a shortfall in ethanol production would be.

"Our fuel logistics and distribution is so deep system rooted with ethanol that we they need and very difficult for the refining system change, said Andy Lipow, President of Lipow oil associates."

Areas and businesses worst affected by the drought already feel no end in sight to the dried-out conditions the economic effects. But overall losses on the farm-belt are expected to be to the widespread use of federal farm insurance, farmer losses of crop cover reduced.

So the economic impact is crop this summer shortfall expected to be less than a tenth of a percent from gross domestic product, tap to Paul Dales, Economist at capital economics.

"This is clearly not for the whole economy a disaster, but when only 2 percent is growing every bit counts," he said.

Deputy Beth Ann Bovino, S & P Chief Economist breaks CNBC Rick Santelli, the latest figures on retail sales and producer prices.