- Food price inflation could rise by as much as 3.5% this year, says US Agriculture Department
- Percentage of crop rated ‘very poor’ or ‘poor’ rose to 48% – the worst rating since the 1988 drought
- Many ranchers send animals to slaughter early to save costs
- Global grain trading firm Cargill joins chorus of critics of biofuels
- China worried about US soybean supplies
By Nick Enoch
PUBLISHED: 10:23 EST, 1 August 2012 | UPDATED: 12:42 EST, 1 August 2012
As the worst drought in more than half a century continues to afflict the Midwest, the price of corn surged by 20 per cent in July – the biggest two-month rally since the last major drought in 1988.
Two-thirds of the continental United States is now suffering from the most widespread drought since the 1950s.
And the lack or rain in America’s breadbasket is intensifying at an unprecedented rate, driving concern food prices could soar if crops in the world’s key producer are decimated.
The latest US Drought Monitor reported a nearly threefold increase in areas of extreme drought in the course of a single week in the nine Midwestern states where three-quarters of the country’s corn and soybean crops are produced.
The percentage of the nation’s corn crop rated very poor or poor rose to 48 per cent in the week ending July 29, while 47 per cent of the soybean crop was in very poor or poor condition, according to the US Department of Agriculture.
That is the worst rating since the drought of 1988, which cut production by 20 per cent and cost the economy tens of billions of dollars.
The U.S. Agriculture Department last week raised its estimates of food price inflation due to soaring grain prices tied to the drought, saying prices could rise as much as 3.5 per cent this year and another 3 to 4 per cent in 2013, led by meat.
And with grazing pastures also parched and feed prices at record highs, many ranchers are sending their animals to slaughter early because it is too costly to keep them until full size.
CHANCE OF RAIN BRINGS HOPE FOR SOYBEANS
Meteorologists said there were chances for rain through the weekend in the Midwest farm belt.
‘The U.S. weather model has a little wetter forecast than yesterday, but overall it looks like a similar pattern in August that we saw at the end of July,’ said Jason Nicholls, meteorologist for AccuWeather.
He said 0.25 to 0.75 inch of rain could fall into the weekend in the northern and eastern Midwest, with about 70 per cent coverage.
From 0.10 to 0.50 inch of rain was forecast for the central and southern Midwest, with 50 per cent coverage.
The rains could benefit the soybean crop, which will be setting pods the next two weeks – a crucial phase in their reproductive cycle that determines yield and final production.
Agronomists had said that the hardy soybean crop needs just a fifth of the rain that corn needs due to its much smaller biomass, and that timely rains could help soybeans flourish.
President Barack Obama’s administration has opened up protected US land to help farmers and ranchers and has encouraged crop insurance companies to forgo charging interest for a month.
It has also provided emergency low-interest loans to farmers in the 1,234 counties across 31 states which have been declared disaster areas due to the drought.
Local governments are also trying to help. The state of Missouri has offered millions in grants to help farmers and ranchers drill or deepen wells and expand irrigation systems.
Experts predict there will still be a sizable harvest — just not anywhere close to the bounty of recent years or the bumper crop predicted before the rain stopped.
And that will likely bring price increases for food and all types of products for years to come.
‘We’re not just talking about the fact that things are going to be tight here in the United States,’ said Sam Funk, senior economist with Doane Advisory Services.
‘When you look at such a large portion of the corn and soybean crop that gets exported, you’re going to talk about substantially impacting a number of other marketplaces.’
The impact spreads far beyond just cereal or bread – or a single growing season – because so much of the US crop is used as livestock feed and those herds are being culled, Funk said.
Due to the early culls, getting the US cattle herds back up to pre-drought levels would take at least two years, he said, warning that pork and poultry production was also at risk.
Out in the fields, many farmers are trying to salvage what they can by chopping the stunted plants into feed for livestock. So few ears of corn are growing, it just isn’t worth harvesting.
Worries about the worst drought in more than half a century afflicting the world’s largest grain exporter also deepened overseas.
Buyers in China and other hungry nations are concerned that the expected sharp drop in U.S. harvests will cause shortages and price spikes.
CURB AMOUNT OF CORN IN BIOFUEL, WARNS GRAIN BOSS
One of the top corporate leaders in agriculture warned that the government must act quickly to reduce the amount of corn going into ethanol to prevent a sharp spike in food prices.
Greg Page, chief executive of global grains trading giant Cargill Inc, joined a chorus of critics of biofuels by urging the U.S. government to temporarily curb its quotas to produce corn-based ethanol fuel.
Page said on CNBC that the U.S. biofuel mandate ‘needs to be addressed’ through existing policy tools.
Otherwise, the spike in U.S. corn and soybean prices to record highs will ‘ration’ demand in ways that will hurt food production too much.
‘If all of that is only on livestock or food consumers, it really makes the burden disproportionate.
‘What we see are 3 or 4 percent declines in supply lead to 40 to 50 per cent increases in prices, and I think the mandates are what drives that,’ he said.
In 2011, almost 40 per cent of the giant U.S. corn crop went into making ethanol, and the U.S. still exported more than half of all corn shipments worldwide.
‘There is a methodology to reduce the amount of biofuels that is mandated in the U.S,’ Page said.
On Monday, U.S. livestock groups appealed to the Environmental Protection Agency (EPA) to curb or suspend the mandate, warning against the ruinous impact of soaring feed costs.
Corn and soybean meal make up basic animal feedstuffs.
Grain analysts polled by Reuters pointed to a U.S. corn crop of 11.2 billion bushels, the smallest in six years and down 14 per cent from USDA’s latest forecast of 12.97 billion. Initial forecasts were for a crop of more than 14 billion bushels.
Soybeans, which were planted later and until now escaped the drought’s pressure, are now also being hurt.
Analysts predict a 2.834 billion bushel harvest, the smallest in four years, and down from USDA’s latest estimate of 3.05 billion bushels.
Oilseed processor and ethanol producer Archer Daniels Midland Inc reported a larger than expected 25 per cent drop in quarterly profit yesterday due in part to higher corn prices causing it to lose money making ethanol.
‘In a challenging fourth quarter, solid results from our global oilseeds business, particularly in South America, were more than offset by negative U.S. ethanol margins and weaker U.S. merchandising results,’ ADM CEO Patricia Woertz said.
Brokerage BB&T Capital Markets last week lowered its earnings forecasts for U.S. pork producer Smithfield Foods Inc and U.S. chicken producer Sanderson Farms Inc, citing corn prices.
But some said that easing off ethanol production – already at a two-year low amid soaring corn prices – was unnecessary.
In Iowa, the largest U.S. corn and soybean producer, Gov. Terry Branstad said he opposed an ethanol waiver.
‘Even if you took that kind of action, it probably would have no action on soybean and corn prices,’ Branstad said.
Ray Bardole of Rippey, Iowa, a soybean farmer and industry official now touring China,said he has been reassuring the worried Chinese, who are the biggest importers of U.S. soybeans.
‘As we have met with folks from the government, as well as the Chinese media and our customers themselves, that is absolutely the very top thing on their mind,’ he said.
At the Chicago Board of Trade, corn and soybean markets eased back from new record highs this week as traders took their profits.
December corn futures closed down 1.1 per cent at $8.05 – 1/4 per bushel and November soybeans closed down 0.2 per cent at $16.41 per bushel.
‘We are continuing to see a deterioration of the crops,’ grains analyst Karl Setzer of MaxYield Cooperative in West Bend, Iowa said, referring to the U.S. Department of Agriculture’s crop progress report issued on Monday.
That report said 24 per cent of the domestic corn crop was in good-to-excellent condition as of Sunday, down from 26 per cent the previous week.
That was slightly better than trade expectations for a three-point drop.
The soybean crop was 29 per cent in that category, down from 31 per cent in the previous week.
Those ratings were the worst for those crops since the last major drought in 1988.
Read more: http://www.dailymail.co.uk/news/article-2182110/America-drought-Price-corn-surges-20-cent-July-drought-continues-afflict-Midwest.html#ixzz22MISJyj0