Food Prices to Rise for Holidays, Then More in 2013

Last summer's drought is just one factor that could mean more expensive holiday food budgets.

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Maybe it's time to get a Tofurkey for Thanksgiving (and pick one up for Christmas, too), since turkey prices have been steadily on the rise in recent years, and don't seem to be letting up.

From 2005 to 2011, the average price for turkey went up by 47 percent, compared to 13 percent for all food at home, according to the U.S. Department of Agriculture. Higher costs for feed and rising energy costs have caused farmers to cut down on production and have helped to drive up costs for the feathery fowl.

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The latest CPI report from the Labor Department suggests that the trend is continuing: the price for "other poultry including turkey" (a category that excludes chicken) was up last month by 5.5 percent on an unadjusted, annual basis.

The price of turkey (and of many other foods) could get pushed even higher as the year draws to a close. That's because last summer's historic droughts, which wreaked havoc on crops nationwide and pushed corn and soybean prices upward, appear to finally be showing up in food prices.

"There's possible evidence that we're starting to see drought impacts on a minor scale," says Richard Volpe, a USDA economist, pointing to October food price upticks. "Could there be an impact for Thanksgiving? Maybe. Christmas? Probably."

That could mean growth in prices for poultry, eggs, and dairy products, as those birds and cattle tend to eat a lot of corn and soybeans. Growing grocery bills could make shoppers feel pinched amid the holiday spending season.

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"Normally, this would not be that big a deal. People would just absorb the price hike," says Jeet Dutta, a senior economist at Moody's Analytics. But these are not normal times; many people's budgets are still strapped as the economy continues its uncertain recovery.

"People could cut back in spending on other items. Holiday spending overall could be hurt to some extent because people are paying more for groceries and for eating out," Dutta says.

But even if holiday budgets take a hit from food price increases, the real spikes will come after the new year, says Volpe.

"It's in the first quarter of 2013 that we expect to see the biggest impacts for poultry, fluid milk, and eggs," he says. Prices for beef and pork will follow suit, he adds, as higher feed costs impact cattle and hog herds as well.

But even going vegan won't spare shoppers from the high prices. Eventually, says Volpe, the many products throughout the supermarket that contain elements like corn syrup and corn meal will slowly become more expensive.

"That's going to happen throughout 2013," he says. "It'll be a gradual, spread-out thing. But over the course of the year, consumers and food prices will certainly feel it."

Danielle Kurtzleben is a business and economics reporter for U.S. News & World Report. You can follow her on Twitter or reach her at dkurtzleben@usnews.com.