U.S. Food-Inflation to Ease on Bigger Grain Crops, USDA Says

 (Bloomberg) – U.S. food inflation may ease later this year as larger crop inventories lessen cost pressures, assuming the worst drought since the 1930s ebbs further, the Agriculture Department’s top food economist said.

The drought led to record corn and soybean prices last year. Cattle futures reached the highest ever and the country’s herd dropped to the smallest since 1961 as ranchers culled animals to lower feed costs. Those effects will ease as this year’s grain harvests replenish supplies and agribusinesses worry less about shortages, economist Richard Volpe said today at a USDA conference in Arlington, Virginia.

“The drought is still having impacts on agriculture through all the sectors we think of as important to food prices,” Volpe said. While conditions have improved in some parts of the U.S., rain is needed in the coming months to ensure adequate harvests and improve inventories, he said.

Consumer food costs will rise 3 percent to 4 percent this year, the USDA said last month. The drought pushed the price of corn, the main feed source for livestock, up 68 percent from mid-June to Aug. 10, when it hit a record $8.49 a bushel. Since then, futures have dropped 19 percent, easing pressure on food costs. The reach of the drought, which at its peak covered 65 percent of the lower 48 states in September, fell to 56 percent as of Feb. 12, according to government data.

Production of corn, the most-valuable U.S. crop, may reach a record 14.53 billion bushels this year, up 35 percent from last year, the department said today.

Food prices rose 2.6 percent in 2012 and 0.4 percent in January, according to the government.