Holiday Meals More Expensive This Year? Blame the Weather in Texas

Get ready to pay more for beef, corn, nuts, and other Thanksgiving staples. And it's all because of a little cooling off the coast of South America.

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A narrow swath of ocean off the coast of South America drops three degrees, and a year later the cost of Thanksgiving turkey rises in the United States.

Last September, abnormal cooling in the Pacific Ocean, known as La Niña, shifted rain away from the southern United States, resulting in one of the worst droughts in recent history. Today, every inch of Texas is in a state of extreme or exceptional drought and has been for months, Texas lakes and reservoirs are drying up, and state officials project long-term water shortages. Three million acres of Texas -- equal to 34 Manhattans -- have burned in wildfires this year.

If you can't feel the heat of the drought where you live, you can certainly feel the pinch at the nearest grocery store. Texas is a keystone of U.S. agriculture, and with the oncoming holiday shopping rush, consumers across the country are going to see the effects of those three small degrees on their receipts.

"Yes, we are going to see higher prices this Thanksgiving," Purdue University agricultural economist Corinne Alexander explained. And the price of beef is leading the charge.

In the historic summer heat, pastures withered to dust, leaving ranchers no choice but to sell off their cattle before they could reproduce. "There have been Texas producers that have had to liquidate their herds simply because they can't even water their animals," Alexander says. At mid-summer, the U.S. cattle herd was at its lowest population since 1973.

The initial cattle sell-off increased supply in the short term, but by the end of the year, the USDA predicts beef prices to rise 9 percent higher than previously expected, outpacing the general consumer food index by 5 percent.

The drought has also pushed the cost of hay to record levels. To East Coast suburban consumers, the price of hay must seem inconsequential, but fluctuations in its cost can trickle to the grocery store because it is used as forage for livestock. Normally, a ton of hay costs $80, but this year Alexander says it can go for $200. This is putting pressure on the dairy industry, and the USDA reports that dairy prices are 10.2 percent higher compared to September 2010.

Spikes in corn prices ripple through the agricultural economy as well. Aside from ethanol production and human consumption, corn is used in livestock feed. In the corn-belt, the combination of a wet spring -- which delayed planting -- and searing summer heat -- which killed crops -- forced the price of corn to an all time high in July. This cost is trickling down to consumers; the USDA predicts the price of turkey, which feeds on corn, will be about 3 to 7 cents per pound higher compared to 2010. For a 17 lbs. turkey, that will translate to 50 or 75 cents.

The summer heat also seared through pecan, almond, and peanut crops. The Boston Globe reports pecan production in Texas dropped from 70 million lbs. to 40 million lbs. this year. Nationally, pecan production is down 14 percent, and the nuts will cost an extra $2 a pound. Likewise, the Associated Press reports that peanut production is down 13 percent, increasing  cost from $450 a ton last year to nearly $1,150. In response to the short peanut supply, the J.M. Smucker Company, maker of Jiff, announced that the wholesale price of peanut butter will increase 40 percent this month.

Don't worry, not everything on your Thanksgiving shopping list is getting more expensive. Sweet potatoes prices are 6 percent lower than this time last year, and cranberries will remain the same. And while there was an ornamental pumpkin shortage earlier this fall, there is ample supply of the squash for pies and other confections.

The drought, a once-in-a-century event, caused more than $5 billion in agricultural damages this year. If it persists, it is estimated that the weather could cause $20 billion in damages over the next several years. And it likely will. This fall, La Niña reformed in the Pacific, and while it's hard to predict, climatologists say that moisture will avoid Texas for the foreseeable future. "The odds do not favor the south getting out of drought, at least before next spring or summer, and even that could be a reach," Mike Halpert, deputy director of NOAA's Climate Prediction Center, says. 

But even if the drought ended today, its effect on food costs are likely to persist. It takes three years to raise a generation of cattle to slaughtering size. If beef production were to increase immediately, it would be at least 2014 before an increased supply could impact beef prices at the grocery store.

Although the supply-demand curves are changing for these staples, there is still plenty of food to fill dinner tables. Alexander says the 2012 projection for meat consumption is 200 lbs. per person. "That's not a shortage," she reassures. "The food will be available; you're just going to pay a higher price."