Consumers should brace for record-high food prices. Beef prices hit an all-time high in February and are expected to remain at or near highs until at least 2015. A pound of USDA choice beef sold for a record $5.28 a pound in February. That's up from $4.91 a pound in 2013 and $3.97 in 2008.
The rise in beef prices is due to a shortage of cattle. The U.S. herd has fallen to 87.7 million, its lowest levels since 1951, according to the United States Department of Agriculture. Economists at the USDA say prices are likely to remain high while the herd is restored, a process that could take more than two years.
Yahoo Finance Editor-in-Chief Aaron Task says that while the Federal Reserve maintains inflation is at historic lows - below the Fed’s target of 2% - that’s not the case in the real world. “The Fed might say there’s no inflation, but this is a big reason why most of our viewers and most average Americans say ‘wow, I’m seeing inflation everywhere’ because you can’t escape food price inflation," said Task. "This is definitely a flaw in the Fed model where they ex-out food and energy.”
Food inflation is running higher than overall inflation. The USDA predicts food prices will rise between 2.5% and 3.5% this year. Companies are also bracing for higher food inflation, according to Reuters. Yum Brands (YUM), which owns Taco Bell, said in December that it expects to see 4% inflation in beef prices and other meats this year. McDonald’s (MCD) has changed its “Dollar Menu” to a “Dollar Menu & More” to include items priced at $1, $2 and $5.
"You’ve got to heat your house and you’ve got to eat, so when food prices go up it definitely is a pinch on consumers and this is a big one for sure because Americans - we love our beef,” said Task.
Extreme weather is the main cause of the spike in beef prices. “It’s really about bad weather,” said Task. “It’s about the really bad drought we had last summer. It’s about a very tough winter we had this winter.” Before even the polar vortex that swept across much of the country this winter, an unrelenting drought gripped California, Texas and the plains. The drought has dried up pastures and driven feed prices – such as corn – higher. That made it too expensive for ranchers to feed their herds, forcing many to sell off their cattle.
Airlines cutting out limes
Meanwhile, weather is also threatening another summer staple: limes. Lime prices are at a three-year high thanks in part to flooding, but also due to unrest caused by Mexican drug cartel violence. The average price of a lime hit $0.56 last week, according to the USDA. That’s up sharply from an average of $0.31 a year ago.
“This is about the drug cartels in Mexico and some of the battles that are going on down there,” said Task. “It’s putting a big crimp into the lime harvest or the ability to get those limes to market.” Lime producers in the Mexican state of Michoacan have reduced supply due to cartel violence in the region. Mexico supplied about 96% of the limes imported to the United States in 2012, according to the USDA.
U.S. airlines already have begun cutting back on limes or cutting them out all together. Task, making light of the situation, said that may be the breaking point for many already-weary travelers. “As if airline travel wasn’t hard enough, now they’re going to take away our limes? I mean that might be the last straw for frequent fliers getting on that plane saying, ‘if you can’t put a lime in my gin and tonic or my vodka tonic, then what is the point?’”