Drought Conditions Worsen as Corn Prices Skyrocket

Alex Tiller - Thursday, July 19, 2012

The US drought is intensifying, with almost 55% of the land area within the contiguous United States experiencing drought conditions – the sixth most widespread drought on record, second only to the 1930s “Dust Bowl” and the less well-known droughts of the mid-1950s. Satellite imagery confirms what common sense would predict; crop yields and plant health in the affected areas look very grim.

Farmers and ranchers are bracing for a bad year; corn and bean farmers will see high prices at the silo but will have poor yields. Ranchers are especially concerned because feed prices are going up while their own pasturage is brown and crumbling; early-season stock reports from major cattle centers indicate a large surge in animal sales as ranchers attempt to get out from under the looming feed bill.

In the short run, I would not expect to see huge fallout in the grocery store. Because corn is inexpensive to begin with, even a 50% increase in the price of corn translates into a 1% bump in a typical shopper’s grocery bill. (The increase this summer so far is 45%.) Meat prices are likely to be more volatile; there may be a bit of a bonanza for steak lovers in early days as a glutted beef market clears its stock, but later in the season and next year there may be less beef in the pipeline.

The drought exemplifies the need for prompt action on the 2011 farm bill, in my view – agricultural experts already estimate there will be more than $1 billion in crop insurance payouts in 2012. If those insurance programs aren’t renewed, it could leave a lot of farmers holding a very expensive bag.