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June 29, 2012

Drought threatens U.S. food prices

By Peter Whoriskey The Washington Post

— A drought in the Corn Belt and elsewhere in the Midwest has pushed the bushel price up about 27 percent in the past month alone, and there is little sign of rain in the near future, a forecast that could soon push up food costs across the country, meteorologists say.

 Last week, 63 percent of the corn crop was rated in good or better condition, according to the Agriculture Department. This week, that figure had fallen to 56 percent.

 Concerns arise as the crop approaches pollination, a particularly sensitive two-week period when bad weather can inflict significant damage.

 "You only get one chance to pollinate over 1 quadrillion kernels," said Bill Lapp, president of Advanced Economic Solutions, a Omaha-based commodity consulting firm. "There's always some level of angst at this time of year, but it's significantly greater now and with good reason. We've had extended periods of drought."

 Corn is the most valuable U.S. crop, and its price has ripple effects across a wide range of food prices.

 Rising corn prices mean higher costs for beef producers who use it to feed their livestock; it also means that some fields planted with other crops will be shifted into corn production. In addition, it puts upward pressure on the price of ethanol.

 "Getting a big corn crop is important for everyone," said David Anderson, an agricultural economist at Texas A&M.

 In less than a month, the future price of a bushel of corn has risen from $4.99 to $6.33, Lapp said. The supply of corn in the United States, meanwhile, is down about 8 percent from last year, according to Agriculture Department statistics.

 The area affected by the drought is a swath of the Midwest that reaches as far west as Kansas, as far south as Arkansas and as far east as Indiana, according to the National Weather Service, and the dry condition have come on fast.

 Last week, about 19 percent of the contiguous United States was facing drought conditions characterized as severe or worse. This week that percentage had grown to 24 percent, according to federal forecasters.

 "Based on the drought outlook, the potential for further degradation is very high, and the potential to reach exceptional levels of drought - where there are major crop failures - is very high," said Matthew Rosencrans, a weather service meteorologist. "The climate signals we are looking at right now don't correlate with wetness in that region."

 Jay Armstrong, owner and operator of Armstong Farms in Kansas, flew his small plane over a portion of the affected area and landed with the impression that the potential damage is far worse than is commonly understood.

  "At this time of year, when you look down in a place like Indiana or Illinois, you should see just lush green fields," Armstrong said. "I saw bare soil. I just thought to myself, the market has no idea what's coming."



 



 

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