Drought of '83 probably won't be felt much at the supermarket
Last spring, Melvin Wagner looked forward to a bin-busting harvest. US crop production had set records in recent years. But the Midwestern summer dried up his dreams.
Drought withered crops throughout the region. Mr. Wagner harvested his spring wheat before any damage was done, but his corn and soybeans were hit hard. The corn crop, which he plans to begin harvesting next week, could end up being only a quarter of what it was a year ago.
But, ironically, while some farmers' crops failed completely and commodity prices zoomed upward in reaction to the news, the drought of '83 is expected to have little impact at the grocery store.
Analysts, still catching their breath over the volatile crop prices, only yawn when asked about the outlook for consumers.
''My feeling is that most people have overreacted,'' says Terry Francl, agricultural economist with Continental Bank in Chicago.
''What's all the fuss about?'' asks Ross Korves, a research economist at American Farm Bureau Federation. In recent years, ''food has been just an incredibly good buy. It's still going to be a pretty good buy.''
In fact, 1978 was the last year that food prices rose higher than the general rate of inflation, as measured by the Consumer Price Index, he says. They are likely to rise higher than the index in 1984, but only moderately so. The US Department of Agriculture (USDA) forecasts a relatively low 4 to 7 percent price rise at the supermarket.
Why haven't problems on the farm spilled over onto the grocery shelf? There are several reasons.
First, American farmers produce much more than the United States can consume. Two-thirds of the wheat crop is exported. Wheat, corn, and soybean harvests have been so good in four of the past five years that carry-over stocks - crops held over into the next crop year - stood at record levels this year.
Then, too, high prices in corn and soybeans mostly have an indirect impact on consumers, since both are primarily fed to livestock.
Consequently, analysts predict that meat prices - especially for pork - will make the most significant jumps at the supermarket next year. (But in the short term, ironically, already-low meat prices could be pushed even lower, because high feed prices may encourage producers to take more animals to market than usual, analysts say.)
Finally, on average, two-thirds of food costs to the consumer have nothing to do with the production of the food itself, Mr. Korves says. Rather, they are tied up in transportation, packaging, and preparation - costs not expected to rise dramatically next year. In a 1982 study, for example, the USDA estimated that there were only 4.4 cents worth of wheat in a one-pound loaf of white bread costing 53.2 cents.
So, the real impact of the drought has varied widely, says Darrel Good, agricultural extension specialist with the cooperative extension service at the Urbana-Champaign branch of the University of Illinois.
Farmers who lost most or all of their crops and didn't sign up in the government's payment-in-kind (PIK) program will be severely affected. Other farmers, such as those in some northern Illinois areas, will come out ahead since they escaped most of the drought's devastation and will have near-normal yields, Mr. Good says.
In fact, the drought may have accomplished what the PIK program set out to do - reduce the government's huge stockpiles of surplus grains without driving prices to record lows. For those with the crops to sell, there are profits to be made. Overall, net farm income is expected to climb from $25 billion to $29 billion this year. Mr. Francl says he thinks the figure will approach $30 billion, which would be up 36 percent from 1982.
But for Melvin Wagner, ''It's going to be a year of loss.'' He was a boy of 11 in 1936. ''I would say this drought is just as bad.''
His hope rests on next year's crop.