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Oct. 30, 2021, 3:34 p.m. EDT

Feeling fleeced by pricy filets? Meat, fruit and oats lead the drought-driven surge in food costs

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Myra P. Saefong

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But Olvera is “most concerned with the transportation aspect” when it comes to the rise in fruit prices, and said transportation isn’t exclusive to the fruit category.

“Refrigerated truck availability has been near its tightest, or the tightest on record since at least 2000,” says Olvera. Since mid-year, the USDA’s refrigerated truck availability index has been the tightest in the report’s history in 12 out of 15 weeks, and the rate per mile is “soaring at record levels,” he says.

Forgo those Cheerios?

Also among the key commodities, oats has seen the biggest price rise, with futures prices up 97% year to date.

Spring wheat and oats have been “cut from the same cloth,” says Olvera. “Persistent drought throughout the Northern plains has contributed to stunted harvested area and poor overall production.” Wheat futures /zigman2/quotes/210389638/delayed W00 -1.49% trade nearly 21% higher this year.

A USDA report on small grains released in late September estimated that oat production in 2021 would be at 39.8 million bushels, the smallest on record, down 39% from 2020, with farmers only harvesting 650,000 acres of oats of a planted 2.55 million acres.

Read: ‘Toilet to tap’? As the climate keeps changing, more municipalities aim to recycle our most precious resource

Abandoning 1.9 million acres is “actually relatively small,” says Olvera, but what’s “troubling” is the percent of acres harvested. At just 25.5%, that’s “a record-small percentage of an already record-small planted area,” he says.

“There’s not likely to be a lot of oats around ahead,” he says, and they’re a breakfast staple for things like oatmeal and other products that include whole grains such as breads, some breakfast cereals and snack bars. Drought has “plagued major growing areas” across the Northern plains, as well as the southern prairies of Canada, where spring wheat and canola are grown, says Olvera.

At the same time, the beef cattle sector has seen the largest U.S. beef cow slaughter rate since 2011 and as the herd contracts, this can “certainly spell persistently higher beef prices ahead,” he says.

“Feed costs are elevated and pasture conditions are poor,” Olvera says. Also, amid drier weather and elevated feed costs, dairy cow slaughter rates are increasing, so while dairy price increases this year have been muted, “we’re expecting prices to firm heading into 2022.”

Even so, the major impact of drought hasn’t yet been felt quite yet, he says.

Overall, costs for food have been “feeling the production, transportation and labor squeeze, but we’re likely to see drought impacts picking up into 2022 as smaller beef cow herd is noted, leading to fewer overall calves,” and a smaller market animal availability over the coming 16 to 24 months, says Olvera.

Holiday impact

That said, increases across the consumer price index for food at home and away from home are likely to “narrow,” but “it doesn’t look like food prices are going to come down materially in the near term,” he says. As families gather for what may be the first big celebrations since the pandemic began, “pretty much all indicators are pointing towards higher holiday food prices across the board.”

He points out that turkey supplies remain tight so “pick up that holiday turkey between now and early November.” Year-over-year September poultry prices have climbed by 6.1%, USDA data show.

The supply of turkeys won’t run out, but “late shoppers may have slimmer pickings,” says Olvera.

Read more about drought conditions in MarketWatch’s Special Report

/zigman2/quotes/210389638/delayed
US : U.S.: CBOT
778.50 ¢
-11.75 -1.49%
Volume: 45,306
Jan. 21, 2022 1:20p
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