If there is one economic indicator that almost anyone can relate to, it is the price of food, and for the past several years food prices have been going up year over year.
One reason for the sustained price increases is the pervasive drought that has plagued the U.S. since 2010 and that has by now affected more than 65% of the country. The ramifications of these drought conditions are profound.
This graphic clearly shows how extensive the drought is and how it is predicted to continue or intensify through most of the 2013 growing season. The impact of this drought could be further rising prices of core products like corn and soybeans.
Below is a chart of the corn stock to use ratio as it stands currently, with the big issue being that the U.S. Department of Agriculture (USDA) predicts corn crop yields to hit 17-year lows. The sensitivity to price movements is higher with less room for error in back-up supply:
Corn prices, for example, cause the price of feed to go up, which in turn can cause the price of meat to rise. Recent estimates by the U.S. Department of Agriculture (USDA) indicate that beef prices are expected to rise significantly. With feed prices going up so much, ranchers have found it necessary to reduce the size of their herds. Smaller herds, of course, result in even less supply of meat.
Beef is not the only product to suffer from the drought’s impact on corn prices. Chicken and turkey prices are also expected to rise between 3.5% and 4.5%, with egg prices expected to rise between 2% and 3%. Granted, we know how accurate government predictions have been. Any way you look at it, food prices are going to continue to go up and American families are going to feel the pinch, but persistent drought exacerbates the real story.
Rising food prices, resulting in large measure from the currency inflation and malinvestment that created the 2008 financial crash, have already led to social unrest and revolutionary change. As we wrote two years ago, shortages and inflated food prices played a large role in the so-called Arab Spring.
Even amid the relative affluence of the U.S. food prices, like prices at the gas pump, are among the inflationary signals that create the greatest sense of popular unease, hitting hardest and first the poor, then the working poor, then middle-class households with families to feed. As we have reported recently, a Fox News poll found that American voters are more concerned about rising prices than any other economic issue.
Briskly rising food prices are not the only economic consequences of a sustained drought. As we reported in the WealthCycles article, Price Inflation Prompted Stampede into Silver and Gold Presaged by Warburg Sale:
As food prices rise and the Fed continues to pump currency into the system with the latest round of quantitative easing, the average consumer is going to quickly realize that she is getting squeezed on two sides—the rising value of food and the devaluing of the dollar. With this realization consumers are going to lose faith in the dollar maintaining purchasing power. When this awareness reaches the 10% “tipping point,” more and more people will realize that the only path to economic security is to hold real money, gold and silver.