The Effects of the US drought

The Corn Is Dying All Over America

The Economic Collapse Blog,

9 July, 2012

All over America the corn is dying.  If drought conditions persist in the middle part of the country, wheat and soybeans will be next.  Weeks of intense heat combined with extraordinarily dry conditions have brought many U.S. corn farmers to the brink of total disaster.  If there is not significant rainfall soon, many farmers will be financially ruined.  This period of time is particularly important for corn because this is when pollination is supposed to happen.  But the unprecedented heat and the extremely dry conditions are playing havoc with that process.  With each passing day things get even worse.  We have seen the price of a bushel of corn soar 41 percent since June 14th.  That is an astounding rise. 


You may not eat much corn directly, but it is important to realize that corn or corn syrup is just about in everything these days.  Just look at your food labels.  In the United States today, approximately 75 percent of all processed foods contain corn.  So a huge rise in the price of corn is going to be felt all over the supermarket.  Corn is also widely used to feed livestock, and if this crisis continues we are going to see a significant rise in meat and dairy prices as well.  Food prices in America have already been rising at a steady pace, and so this is definitely not welcome news.


The weather conditions in the middle part of the country during the last couple of months have been highly unusual.  The following is from a recent article in the Los Angeles Times....

It's not that the Midwest hasn't been extremely hot before, and it's not that it hasn't been incredibly dry.

But it's unusual for a vast swath of the Midwest to be so very hot and so very dry for so very long -- particularly this early in the summer.

The current heat wave -- which is spurring comparisons to the catastrophic heat of 1936 --  is "out of whack," meteorologist Jim Keeney said Friday in an interview with the Los Angeles Times.

Corn crops typically pollinate and mature in June and early July.  That is why this time of the year is so vitally important for corn.  We have reached a make it or break it moment.


The following is how an Accuweather.com report described what is happening right now....

Either heat or drought can stress the stalks, but both can basically shut down the pollination process. When this happens few, small or no ears of corn form.

According to AccuWeather.com Agricultural Meteorologists, you can't raise a corn crop with less than an inch of rain over six weeks, combined with 100-degree and higher temperatures. However, these conditions have taken place in much of the southern corn belt through the week of July 4, 2012.

If pollination does not happen, corn farmers might as well give up.


Just check out what agricultural economist Chris Hurt said the other day....

"Pollination problems just can’t be overcome, even if the weather turns. There’s no turning back. There’s just failure."

At this point, half of all corn in the state of Indiana is already in poor shape.


With each passing day, the condition of the corn gets even worse.


As a recent article in the Chicago Tribune detailed, many farmers feel completely helpless at the moment....

Dave Kestel, who farms about 1,300 acres in Manhattan about 40 miles southwest of Chicago, said he feels helpless.

"Every day you get out there and it's the same heat and cloudless sky," he said. "You see your corn just withering out there, knowing you can't do anything about it."

The United States is suffering from a severe lack of rain.  Just look at the chart posted below.  According to the U.S. Drought Monitor, most of the country is experiencing drought conditions right now....







These drought conditions have also played a major role in the huge number of wildfires that we have seen lately.


There are a few northern states that are not feeling the drought right now, but otherwise the rest of the country is extremely dry.


So what does all of this mean for you and I?


A recent article by Holly Deyo summarized why we should all be praying for rain....

Since 75% of grocery store products use corn as a key ingredient, expect food prices to skyrocket. Corn is also a staple in many fast foods. Corn is in ethanol and the main food source or chickens. In addition to this, maize is in many things that aren't obvious like adhesives, aluminum, aspirin, clothing starch, cosmetics, cough syrup, dry cell batteries, envelopes, fiberglass insulation, gelatin capsules, ink, insecticides, paint, penicillin, powders, rugs and carpets, stamps, talcum, toothpaste, wallpaper, and vitamins. That's just for starters...

This is a huge heads up for you to purchase corn-using products NOW before these conditions reflect in grocery goods. It will be a narrow window of opportunity.

These thoughts are being echoed by many agricultural economists as well.  According to Businessweek, the outlook for U.S. food prices is bleak....

"When people look at rising prices for hamburger, butter, eggs and other protein sources from higher corn costs, that’s when more money ends up in the food basket," said Minneapolis- based Michael Swanson, a senior agricultural economist at Wells Fargo & Co., the biggest U.S. farm lender. "We were hoping for a break, and we aren’t going to get it."

Unfortunately, the fact that the corn is dying all over America is not just a problem for the United States.


As Businessweek also recently noted, the fate of U.S. corn affects the entire globe....

When rain doesn’t fall in Iowa, it’s not just Des Moines that starts fretting. Food buyers from Addis Ababa to Beijing all are touched by the fate of the corn crop in the U.S., the world’s breadbasket in an era when crop shortages mean riots.

This year they have reason to be concerned. Stockpiles of corn in the U.S. tumbled 48 percent between March and June, the biggest drop since 1996, the U.S. Department of Agriculture said last week. And that was before drought hit the Midwest.

The United States is the world’s biggest exporter of corn by far, and if there is a massive corn crop failure in America it is going to be felt to the four corners of the earth.


Just check out what Abdolreza Abbassian, a senior economist with the U.N. Food & Agriculture Organization, said the other day....

"Everyone watches the U.S. because they can rely on it. Without it, the world would starve."

Back in February, I wrote an article that suggested that we could see dust bowl conditions return to the middle part of this country in the years ahead.
A lot of people were skeptical of that article.


Not quite as many people are skeptical today.


The following is from a recent article posted on MSNBC entitled "Fears of new Dust Bowl as heat, drought shrivel corn in Midwest"....

Crop insurance agents and agricultural economists are watching closely, a few comparing the situation with the devastating drought of 1988, when corn yields shriveled significantly, while some farmers have begun alluding, unhappily, to the Dust Bowl of the 1930s. Far more is at stake in the coming pivotal days: with the brief, delicate phase of pollination imminent in many states, miles and miles of corn will rise or fall on whether rain soon appears and temperatures moderate.

As I wrote about last week, if the weather does not turn around soon the implications are going to be staggering.


Even if we got some significant rainfall at this point a tremendous amount of damage has already been done according to the Washington Post....

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.”

So is there significant rain in the forecast?


Unfortunately, the answer is no.


The National Weather Service says that the corn belt will experience "above-normal temperatures" and "below-normal rainfall" over the next week.


At this point it does not look like there will be any significant rainfall for the foreseeable future....

"We got a break in the temperatures over the weekend but no rain of significance is in sight for next seven days," said Jim Keeney, a meteorologist for the National Weather Service the US central region based in Kansas City, Missouri.

Needless to say, that is really bad news.


Right now we just have more heat and more dryness to look forward to.  The skies are like iron and the earth is like brass.  We like to think that we have conquered nature, but at moments such as these we see that is not true at all.


A couple of weeks ago I wrote an article about all of the reasons why we should be concerned about the second half of 2012.  In that article I did not even mention drought and crop failures.  Sometimes major problems have a way of piling on top of themselves.


The U.S. economy is already in bad enough shape without adding major crop failures to the mix.  This is something that we just don't need right now.


But it looks like we are going to have to deal with it.  Unless there is a major change in the weather, food prices are going to go up even more and large numbers of farmers and ranchers are going to be absolutely devastated.


Let us all pray for rain.  We desperately need it.

And here is a video about the effect on the cattle industry

"A threat to hamburgers, if realized, might actually get some climate-change deniers to wake up". - JO

Visit msnbc.com for breaking news, world news, and news about the economy

USA: The effect of record Heat

Why You Should Watch Corn Prices for Next Two Weeks

Corn is facing the worst crop conditions in two decades and the next two weeks will be critical in determining the size and quality of the U.S. crop

CNBC,27 June, 2012

The outlook is particularly difficult since expectations just a few weeks ago were for an early, bumper crop that would provide a record number of bushels and high level of corn in stock.

But unusual heat and lack of rain across the heart of the Midwest corn belt threatens this year’s crop yield and has put a fire under futures prices. Higher corn prices affect everything from cereal to sweeteners to animal feed and the ethanol in gasoline.

Corn for December delivery jumped more than 3 percent Wednesday morning to a new nine-month high, after Tuesday's 5 percent gain took it to $6.24 per bushel. The price for new crop corn futures has jumped about 24 percent since the first of the month and 14 percent this week alone.

“We need some good, soaking rains within the next 10 days, or we really are talking some yield reductions,” said Randy Mittelstaedt, director of research at RJ O’Brien.

While other grains are also impacted, Dennis Gartman of the Gartman Letter points out that the corn crop is most at risk.

“For corn is tasseling…or soon shall be…and that is its most vulnerable period of the year,” he wrote. “That is when the crop is first ‘made.’ If tasseling does not occur properly, it shall matter not what happens to the corn crop thereafter; the crop will be lost, or greatly diminished.”

So the next two weeks are central to this crop.  Right now the weather for the next five-ten days looks to be hot and dry; the worst possible conditions for making but the best conditions for driving prices higher,” he wrote. Gartman also warned that investors should be wary of a weather trade, as it can quickly reverse.

The latest USDA data, released Monday, shows that conditions have deteriorated with heat and drought impacting the key Midwest growing states. The report said 56 percent of U.S. corn is now rated at good to excellent, down from 63 percent last week. There had been expectations of a bumper crop, needed to replenish U.S. stocks. Soy beans were 53 percent good to excellent, down from 56 percent the week earlier.

Unusual heat and lack of rain across the heart of the Midwest corn belt threatens this year’s crop yield

Mittelstaedt said the ratings are the worst his statistical analysis shows since 1993. Reuters described the crop conditions ratings as the worst since 1988, when a major drought decimated yields, and Goldman Sachs says it's the worst since 1990.

“It was perfect growing conditions this spring. It was moist and warm,” Mittelstaedt said, noting there was a lot of optimism when the crop was planted several weeks early.

“Typically, there’s a good relationship between early planted corn and higher yields. The USDA is using a record yield in their forecast,” he said. “One caveat to this argument is we do have the highest corn acreage planted in over 100 years.” He also noted that the northern growing region, including parts of Iowa and the Dakotas, as well as the Carolinas show the potential for good harvests.

The USDA is expecting 14.8 billion bushels of corn to be harvested this year, but Mittelstaedt is expecting just 13.4 billion. Last year’s crop was 12.4 billion, and the growing region of Iowa, Illiniois, Indiana and Ohio produced 5.7 billion bushels of the U.S. total.

Gartman said the total crop could be 14.2 to 14.4 billion bushels, and that number “may move lower swiftly.” The government forecast is also for 166 bushels per acre, more bullish than some private forecasts below 160. Last year’s yield averaged 148 bushels per acre.

“We see the potential for 2012/2013 U.S. corn ending stocks to be closer to one billion bushels versus the USDA which is last forecasting stocks near 1.9 billion bushels,” he said. “That’s considering conditions don’t get any worse from this point forward. The last 10 days have really taken a dramatic turn for the worse for the crop in all honesty.” Last year’s corn stocks were just 850 million, the lowest level since 1995, he said.

Michael Harris, director of trading at Campbell & Co, said the market is at a point where it is pulling in investors who normally don’t trade corn, evident in how corn was moving sharply higher to limit up levels in a “risk off” market Monday.

“This is what you always worry about when trades get crowded. You’re looking for the fast money to get into the trade. They could be looking for the first rain drop to sell,” he said. “The same volatility we’ve seen on the upside, we could see on the downside.”

Harris said the trend could continue until the weather changes. “You get fundamental people that are playing the weather and you have the systematic trend followers, who are being pulled in as the market continues to go higher,” he said.

Goldman Sachs analysts, in a note, point out that the crop conditions were similar in 2008 but they recovered over the course of the season with yields ultimately in line with the USDA’s May projection. They noted, however that the pace of planting that year was one of the slowest on record, while this year’s planting was early, having proceeded at a record pace.

“There was a vastly improved mindset that we were seeing a vastly improved situation for the coming year,” said Mittelstaedt. “That whole psyche is what’s changing right now.