The U.S. Drought Is Hitting Harder Than Most Realize
Repercussions are everywhere
by Chris Martenson.
29 August, 2012
This is an important update on the U.S. drought of 2012, the combined record-setting July land temperatures, and their impact on food prices, water availability, energy, and even U.S. GDP.
U.S. Drought Intensifies
Aug 17, 2012
The drought in the United States is continuing to intensify, according to the National Oceanic and Atmospheric Administration (NOAA).
The latest Drought Monitor says 61 percent of the contiguous United States faces moderate or worse drought conditions this week.
Nearly 30 percent is experiencing extreme to exceptional drought, exceptional being the most severe category.
Officials say the amount of land that's currently affected across the U.S. is larger than the entire state of California.
Aug 21, 2012
Initial reports from the closely watched Pro Farmer Midwest Crop Tour suggested more crop damage than expected from the drought, raising the potential for diminished soybean production this fall and sending futures sharply higher.
The disappointing crop reports from scouts touring fields on the Pro Farmer crop tour in states such as Ohio and South Dakota make it hard to believe soybean yields will reach current U.S. government crop projections, said Don Roose, president of advisory and brokerage firm U.S. Commodities in West Des Moines, Iowa.
The market is in the "watch and worry" mode on all fronts as shrinking crop forecasts will further tighten supplies already projected to dwindle to precariously tight levels in 2013, Mr. Roose said.
On the annual Pro Farmer tour, analysts and investors walk corn and soybean fields in seven Midwestern states over four days to assess prospects prior to the fall harvest. Pro Farmer is an agricultural advisory firm. The Pro Farmer tour, which wraps up Thursday, reported diminished potential for the soybean crop in both Ohio and South Dakota.
The crop tour doesn't estimate soybean yields, but it reported an average 584.9 pods per 3-foot-by-3-foot square area in South Dakota, down 47% from a year ago. In Ohio, scouts reported soybean counts at an average of 1,033.72 pods per 3-foot-by-3-foot square area, down from 1,253.2 pods a year ago.
Soybeans entered their critical growing phases in recent weeks, and the crop has benefited in some regions from recent rains across the eastern Farm Belt.
Meanwhile, scouts with the Pro Farmer Midwest Crop Tour on Monday reported an average estimated corn yield in Ohio of 110.5 bushels per acre, down from the tour's estimate of 156.3 bushels a year ago. In South Dakota, tour scouts reported an average yield estimate of just 74.3 bushels per acre, down from 141.1 bushels a year ago.
While commodities traders and agronomists have braced for weeks for the prospect of a crop decimated by drought, the estimates were lower than many had expected.
Aug 13. 2012
The USDA has provided considerable information about how the drought’s effects were likely to percolate through the economy. Because of a smaller-than-expected corn crop, the USDA said it can make the general prediction that “we will see impacts within two months for beef, pork, poultry and dairy (especially fluid milk). The full effects of the increase in corn prices for packaged and processed foods (cereal, corn flour, etc.) will likely take 10-12 months to move through to retail food prices.”
The USDA has a formula for predicting changes in the rate of inflation caused by gains in prices at the commodity level: if the farm price of corn rises 50%, retail food prices rise by 0.5% to 1% as measured by the Consumer Price Index (CPI).
The price of September corn futures from mid-June until early August advanced 55%, meeting the USDA’s criterion for a measurable increase in the CPI Lapp presented a more extreme scenario than the USDA. He predicted that the damage to the 2012 corn crop will translate into a food inflation rate of 4% to 5% in 2013. In his view, the dollar cost of the drought already was $30 billion, which accrued rapidly over the summer.
“This is a cost that somebody has to bear,” Lapp said. “Some price hikes are fairly quick and others take a while.”
He said high feed costs will have to be absorbed by producers, who will likely liquidate part of their cattle and swine herds and poultry populations. At the retail level, the drought’s effects will translate into narrower margins — and expected higher prices — for processed food and soft drink manufacturers among others.
Lapp offered his opinion that legislation that has effectively required 40% of the corn crop be used in making biofuels has made everything worse.
“The situation has been aided and abetted in a negative way by the biofuels mandates,” he said.“Shame on us for having mandated so much to corn ethanol” without creating contingencies for a bad crop year.
Aug 20, 2012
(Reuters) - Two leading Russian agricultural analysts cut their forecasts for Russia's grain harvest on Monday after harvest data from two drought-stricken eastern growing regions reduced the outlook for the overall crop.
SovEcon narrowed their grain forecast to 71-72.5 million metric tonnes (...)
The government's official grain harvest forecast is 75-80 million tonnes, of which 45 million tonnes could be wheat. The government has put this season's exportable surplus at 10-12 million tonnes, a level seen by traders as an informal cap on exports.
The government has tried to reassure markets there will be no repeat of August 2010, when Russia's government shocked markets with a snap decision to ban grain exports when the scale of losses from major drought became clear.
The government has indicated that protective tariffs could be an option, though only after the end of the calendar year.
But traders widely expect limits to be imposed in some form, perhaps as early as November, after heavy exports in the early months of the season showed Russia could hit the 10-12 million tonne mark sooner than January.
Need for Even Higher Prices
Aug 20, 2012
Corn prices surged this month to an all-time high of $8.4375 a bushel on the back of the worst drought in the US in nearly half a century. But prices have since fallen roughly 5 per cent. The impression is the rally has run out of steam.
This is far from the real picture. Prices need to rise again – probably setting all-time highs – to dampen consumption that is running ahead of supply.
If demand does not slow down, silos will be all but empty before the next harvest arrives in late 2013.
On paper, the balance sheet for corn supply and demand published by the US Department of Agriculture seems good enough. But in practice, the numbers look a bit shaky. The agency, whose figures are closely watched by the market, first estimates supply and, after that, adjusts the demand data to maintain a minimum level of inventories.
This time the USDA is asking for monumental rationing on the demand side. For example, US corn feed and export demand will need to drop to their lowest levels in nearly 20 years.
The USDA is also forecasting lower ethanol production – and thus corn demand. Ethanol output has fallen, but not nearly enough. Worse, the rise in wholesale petrol prices back above $3 a gallon means that ethanol producers are profitable again, even when paying record corn prices.
Corn is now trading just above $8 a bushel – but traders in the physical market say that prices need to rise to $9-$10 to force demand down enough to meet the consumption levels anticipated by the USDA.
The retreat in corn prices over the past couple of weeks has given inflation watchers a false sense of security. The market should not relax, however. More food inflation is just waiting around the corner.
Dairy, Meat, and Even Higher Gasoline Costs
The withering crops are translating into higher feed costs for livestock producers. "This is different than anything I've ever experienced," said Kent Pruismann, who raises cattle and hogs on a farm in Sioux County, Iowa, and saw his costs for feed jump by 20% in July.
The higher corn, soybean and wheat prices will reach food makers, exporters and eventually consumers. Drivers already have seen fuel costs climb because of higher prices for ethanol, a corn-based fuel that is blended into gas. The drought also has reignited the debate over whether ethanol production is a drain on global food supplies.
Aug 14, 2012
LOUISVILLE, KY (WAVE) – When you think of cattle feed, you probably don't think of candy, but due to the drought that's exactly what one farmer chose to do.
At Mayfield's United Livestock in Western Kentucky, owner Joseph Watson feeds his herd second hand candy.
Watson started feeding his cattle the candy because corn prices were so high.
He mixes the candy with an ethanol by-product and a mineral nutrient. He monitors the daily intake and said the cows have had no real health issues.
Aug 19, 2012
Widespread drought has scorched much of the pastureland and hay fields needed to sustain cattle herds in the U.S., forcing many ranchers to find feed alternatives or sell their animals early into what has become a soft beef market.
The shortage has led to higher hay prices, with some farmers saying they have to pay two to three times last year's rates.
Despite farmers setting aside more land to grow hay this year, they are still producing a lot less because of the drought, according to a recent Department of Agriculture estimate.
The harvest of alfalfa, generally considered to make the best hay because of its high nutrient levels, is forecast to be the worst since 1953, according to the USDA.
Pasture grass and hay are what most cattle are fed for the roughly two years they live before being slaughtered, but the drought is threatening to starve the animals.
Illinois rancher Steve Foglesong said that most years he could graze his cattle from spring through November on verdant fields that are now brown, buying them hay bales only in the winter. This year, he and his animals have their eyes on withered corn plants.
"It may not have any ears on it, but it makes pretty good cow feed," he said.
John Erwin, who owns 20 acres of land in Shelbyville, Ill., said he is having trouble growing alfalfa hay, but demand is strong for what he can produce.
"I'm getting calls from ranchers as far away as Wyoming," Mr. Erwin said. "They're desperate."
He said he has been offered $250 a ton for his hay, nearly double the $130 a ton in a non-drought year. His fields didn't produce any hay in July.
I spoke with Caldwell [of Indiana horse rescue] and a number of other horse-rescue organizations around the country by telephone this week. The relentlessly hot dry weather, amplified in many areas by wildfire, has been devastating to farmers, ranchers and other horse owners.
“Everybody is using their winter hay now. The pastures are destroyed and they probably won’t recover before winter,” said Caldwell. “The price of hay has doubled, and the availability is down by 75 percent.”
Caldwell is somewhat sanguine about his own lot, but not optimistic about what lies ahead.
“Today the problem is not nearly as bad as it’s going to be,” he told me. “It’s terribly bad today, but it is going to get a lot worse.”
Aug 16, 2012
COLUMBIA, MISSOURI, U.S. — Tim Evans, an associate professor of veterinary pathobiology and toxicology section head at the Veterinary Medical Diagnostic Laboratory at the University of Missouri College of Veterinary Medicine, Columbia, Missouri, U.S., warns U.S. farmers and livestock producers that drought-damaged corn plants can pose a risk to animal health.
“During severe drought conditions, corn plants, especially those heavily fertilized with nitrogen, can accumulate a chemical called ‘nitrate’,” Evans said.
“This chemical can be very harmful to animals, especially cattle, if they eat corn plants or other vegetation containing too much nitrate. Eating plants with too much nitrate can cause damage to red blood cells, resulting in lethargy, miscarriage, and even sudden death.”
Evans says that in normal conditions, corn crops typically absorb nitrate into only the lower 12-18 inches of the stalk, which does not have to be fed to animals. However, during severe drought conditions, high concentrations of nitrate can accumulate in the upper portions of the stalk, which cattle and other livestock often eat.
Evans also says that many naturally growing plants and weeds in grazing pastures can accumulate nitrate during drought conditions, as well. These plants include many types of grasses and some weeds, which animals might be forced to eat because of limited pasture or hay available as forage for livestock.