Fending Off the Flood's Impact on Food Prices

Record amounts of rainfall in Iowa and other parts of the Midwest this month have left many fields under water. Current estimates peg Iowa's losses at one million acres of corn and two million acres of soybeans, or roughly 20% of the state's grain output, says Jim Fawcett, a crop specialist with Iowa State University's agricultural extension service, which conducts research with local farmers.

"Supplies are already pretty tight," says Fawcett. "It's a bad year to have a shortage." It's also too late in the season to replant corn, and the remaining window to plant soybeans in time for the fall harvest season is closing fast. Even if the rains abate tomorrow, it's highly unlikely that any surviving plants in farmers' soaked fields will yield a bumper crop, he says.

For shoppers, the waterlogged harvest means more than just pricey corn on the cob. Iowa's primary crop of yellow dent corn makes it into a whole slew of consumer products via corn syrup (soda, cereal and cough syrup) and cornstarch (pudding and gravy), says Fawcett. It's also used as feed for livestock such as pigs and poultry. Processed soybeans show up in everything from flour and milk to tofu and oil.

The end result: Higher prices for everything from chocolate chip cookies to pork sausage. The impact of the flooding makes an already bad situation even worse for food shoppers. Grocery prices overall rose 4% last year, according to the Bureau of Labor Statistics' Consumer Price Index, which tracks average prices households pay for common products and services. And shoppers could well see another 4% to 5% increase this year, in part because of the shortages caused by the flood, says Phil Lempert, founder of Supermarket Guru, which provides news commentary and market analysis on the food industry.

The good news is that any increase in grocery prices caused by the flood shouldn't last beyond this fall, says Richard Ebeling, a senior research fellow with American Institute of Economic Research, a Washington, D.C.-based nonprofit think tank. "Corn is a global market," he says. "What gets destroyed in one area is compensated for in others." China, Russia and the Ukraine, for example, anticipate better-than-usual corn yields this year.

Once the flood's impact subsides, however, consumers will still have to grapple with the impact of broader market factors, including demand from developing nations such as China and India, high oil prices that make transporting food more costly and calls for corn as food and fuel.

Unfortunately, there's little shoppers can do to hedge against these short-term price increases, says Ebeling. "You don't need to be stockpiling corn meal for the next decade," he says. But until things subside, shoppers may want to buy a little extra when their favorite products are on sale — especially if they can double up with a manufacturer's coupon, says Lempert. Keep an eye on prices, too. Because higher corn prices may hit some companies and products faster than others, some brands may temporarily make better bargains. (There's no point in switching to say, rice- or wheat-based cereal from a corn-based one. Prices are high all around.)

Here are some other ways to keep the ever-escalating cost of food from further overpowering the family budget:

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