Drought Blamed as Farm Prices Rise 2.1% in August

Prices farmers got for raw products in August rose 2.1% from July, boosted in part by the momentum of this year’s drought, the Agriculture Department said Tuesday.

Compared to a year earlier, August prices averaged 13% higher. The report also included revised figures showing that the index rose only 2.9% in July, compared to the preliminary reading of 3.6% announced a month ago.

Since April, as the drought cut into this year’s harvest prospects, farm commodity prices overall have climbed 10.8%, according to the latest figures.

But there were signs that some commodity prices were beginning to level off in August.

The department’s Agricultural Statistics Board said in its preliminary report that higher prices for cattle, apples, tomatoes and lettuce contributed most to the August increase, while prices declined for cotton, corn, onions and soybeans.

In the earlier months, corn and soybeans helped lead the way for rising prices. However, by late July, widespread rains began to dampen further increases, although the drought of 1988 has not been broken by any means.

At the Chicago Board of Trade on Tuesday grain and soybean futures closed sharply higher, but it was on the strength of new export business, not further crop losses due to drought, analysts said. Moreover, they said, the corn and soybean crops have passed their most critical stages of development.

Based on Aug. 1 estimates, this year’s corn harvest may drop 37% from 1987; wheat, 13%; and soybeans 23%.

Prices of some major commodities are based on mid-month averages and then are revised the following month when additional information is available.

Consumer food prices are expected to rise 3% to 5% this year, compared to a 4.2% average increase in 1987. Before the drought, USDA was predicting a 1988 food price hike of 2% to 4%.

Department officials have predicted that the drought may add 2 percentage points to food prices in 1989 above the expected increase in inflation, currently forecast at around 4%. That could mean a 1989 food prices increase in the range of 6% to 7%.