The nation's worst drought in nearly a half-century has sent corn prices soaring, a potential boon for Central Valley farmers who grow the crop in irrigated fields and don't depend on the rain.

In reality, however, many area corn growers are sitting out the higher prices this year because they agreed to sell their crops months ago when prices were lower.

California consumers will likely pay for the drought, even though they're located far away from the withered fields of the Great Plains and Midwest.

A U.S. government report issued last month predicted chicken and turkey prices, for instance, would rise between 3.5 percent and 4.5 percent later this year. Milk and beef prices are expected to climb as well. That's because corn and soybeans are key ingredients in animal feed.

This year was supposed to be the biggest one for corn since 1937, with about 95.9 million acres planted across the country. Much of that corn was to become feed for livestock and poultry.

The price of corn gradually dropped over a few months in spring, until the drought hit and decimated the projected supply. Prices shot up starting in June, reaching record numbers at about $8.50 a bushel in mid-July.

For local corn growers, this was mixed news.

"I had all my corn contracted back in April or May," said Leland Schneider, who grows crops and raises cattle in the eastern Sacramento County community of Sloughhouse. Schneider agreed to sell his corn based on prices at that time, which were much lower.

"If the drought continues, we'll be able to profit better with the wheat and the corn in 2013 and 2014, if we contract now," said Schneider.

Most local growers are in a similar situation, since they contract to sell at least some of their corn crop ahead of time based on prices in the futures market.

"They'll contract enough of their acreage to cover their costs, whatever that is, and the remainder, they might hedge the market," said Ken Mitchell of Elk Grove, a board member of the Sacramento County Farm Bureau and a contract turkey producer.

With increasing production costs due to rising prices in diesel fuel and fertilizer, many corn growers were looking at only breaking even this year, said Schneider, adding that the farmers who chose not to contract most of their corn early made a bigger profit.

Given the projected scarcity of corn and soybeans nationwide, cattle growers, chicken farmers and dairies are looking for other sources of feed.

"Everybody's scrambling around, there's a competitive market on all sides," said UC Davis Department of Agricultural and Resource Economics professor Dan Sumner. That means prices for these substitutes, such as wheat, cottonseed meal, and tapioca, are increasing as well.

"When you have hit on one protein market, it's gonna be domino effect on other markets," said Mitchell. "This is definitely not a good thing to increase corn costs … to that extent."

This domino effect, in which the higher corn price increases production costs in the livestock, dairy and poultry businesses, is at the root of the U.S. Department of Agriculture's prediction for higher food inflation.

"In most cases, when you have a situation like this, if there are increases, retailers attempt to absorb as much as they can," said Dave Heylen, spokesperson for the California Grocers Association. "But eventually they have to be passed on to consumers."

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