Drought in U.S. reaching levels not seen in 50 years, pushing up crop prices
By Peter Whoriskey and Michael A. Fletcher,
A drought gripping the Corn Belt and more than half the United States has reached proportions not seen in more than 50 years, the government reported Monday, jacking up crop prices and threatening to drive up the cost of food.
Though agriculture is a small part of the U.S. economy, the shortfall comes as the nation struggles to regain its economic footing. Last week, the Agriculture Department declared more than 1,000 counties in 26 states as natural-disaster areas.
About 55 percent of the continental United States is now designated as in moderate drought or worse, the largest percentage since December 1956, according to the National Climatic Data Center, and the outlook is grim.
“The drought could get a lot worse before it gets better,” said Joe Glauber, chief economist at the Agriculture Department.
Corn is among the most valuable of U.S. crops, and its price has multiple economic ripple effects, reaching into food and energy markets. Rising corn prices mean higher costs for beef producers that use it to feed their livestock. The increase also means that some fields planted with other crops will be shifted into corn production. And a corn price spike can put upward pressure on the price of ethanol, which consumes more than a third of the U.S. harvest.
Over the past two months, the price of a bushel of corn has risen more than 50 percent to $7.72.
The United States has already cut its estimates of the corn harvest by 12 percent, and given the forecast for continuing dryness, the figure could drop further, officials said.
“Minimally, we have lost 10 percent of the crop, and it wouldn’t surprise me if we have lost 20 percent,” said Bill Lapp, president of Advanced Economic Solutions, an Omaha-based commodity consulting firm. “We have not seen this kind of weather in at least 30 years. Farmers in many areas are resigned to the fact that they have anywhere from modest losses to complete losses of their crop.”
Forecasters expect a high-pressure area to remain entrenched over the Rockies and central United States. As a result, any storm systems will probably track across southern Canada, missing the worst-affected areas.
The bottom line: No significant rain is expected.
“The core of the drought region is not forecast to be affected by rain over a significant area in the next two weeks,” said Matthew Rosencrans, a meteorologist with the National Weather Service.
The Agriculture Department on Monday said 38 percent of the U.S. corn crop was in poor or very poor condition, up from 30 percent a week ago. Those are the worst July conditions since 1988, when half of the nation’s corn crop was rated very poor to poor, the agency said.
The rapid rise in the price of corn, however, does not directly translate into similar jumps in consumer prices.
Only about 14 or 15 cents of each dollar a consumer spends on food is attributable to the farm, said Glauber, the economist. The rest of the cost of food arises from processing, transportation and other factors such as demand.
As a result, even large swings in crop prices can have relatively muted effects on what consumers pay at the supermarket.
On the other hand, a run-up in crop prices in 2008 — driven by a very tight wheat market, strong growth in Asia and an energy price spike — caused inflation for food consumed at home to rise more than 7 percent, Glauber said.
That jump was felt most keenly by lower-income Americans.
“The effect of food inflation on poorer households is more significant because they tend to spend a larger share of their household income on food,” Glauber said.
Farmers also bear the brunt of the bad weather, though many are covered by insurance.
“I have had multiple customers tell me that they have been farming for 40 or 50 years, through the severe droughts of the 1980s, and that this is the worst they’ve seen,” said Scott Docherty, general manager at Topflight Grain Cooperative, which runs storage bins and grain elevators in a dozen Illinois towns.
Docherty said it takes about three months for grain to make its way from elevators to consumer products, which is when many consumers should begin feeling price increases, Docherty said.
Brandon Hunnicutt has grown corn, soybeans and popcorn on a 2,600-acre farm in Giltner, Neb., with his father and brother for the past 14 years. He said this year’s drought is “as tough as any I can remember.”
He said farmers in his area compare conditions now to those during the severe drought years of 1988, or even 1977.
Despite it all, he said, his family’s crop is “looking pretty good,” since 95 percent of the farm is irrigated. “Our crop should be about average. It is just a matter of keeping everything watered.
But, he added, “the dry-land guys are really hurting.”