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Drought to hit grocery bill

USDA forecasts food inflation of up to 4% next year

– U.S. consumers may pay 3 percent to 4 percent more for food next year, as the effects of the country’s worst drought since the 1950s work their way onto supermarket shelves, the Department of Agriculture said Wednesday in its first forecast for 2013.

Beef may rise as much as 5 percent in response to tight supplies of corn, which is used to feed cattle, the USDA said in a report on its website. The price of grain, the country’s biggest crop, has surged more than 50 percent since June 15. Food prices will rise 2.5 percent to 3.5 percent this year, the agency said, leaving its 2012 estimate unchanged.

Corn and soybean futures both reached record highs this week on the Chicago Board of Trade, and wheat touched its highest since 2008 as the dry conditions worsened in the Midwest and Great Plains. The drought that prompted the USDA to declare natural disasters in almost 1,300 counties in 29 states – about a third of the country’s total – may lead to the smallest corn harvest since 2006, Doan Advisory Services Co. said Monday.

“The transmission of commodity price changes into retail prices typically takes several months to occur, and most of the impact of the drought is expected to be realized in 2013,” said Richard Volpe, the USDA’s food economist, wrote in a note accompanying the forecast.

Food costs have risen 1 percent this year, the government said this month.

Higher commodity prices may affect products as varied as meat bought by McDonald’s Corp., the grain bought by General Mills Inc. and the sweeteners used by Coca-Cola Co.

The earliest price increases may be seen in poultry meat and eggs, said Bill Lapp, president of Advanced Economic Solutions in Omaha, Neb. The USDA Wednesday said egg prices will rise as much as 4 percent in 2012, up from its projection for this year of 1 percent to 2 percent.

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