WASHINGTON, July 24, 2012- Due to the “most severe and extensive drought in at least 25 years,” USDA’s Economic Research Service (ERS) is providing ongoing data regarding the impacts of the drought on key commodities and food prices.
“Half-way through the 2012 crop year almost 40 percent of agricultural land is experiencing severe or greater drought, which makes the 2012 drought more extensive than any drought since the 1950's,” according to ERS. The service’s next farm income forecast will be released August 28 and is expected to reflect the drought's impacts.
“With the ongoing drought expected to destroy or damage a portion of the field corn crop in Iowa and other states, an increase in the farm price of corn has already occurred and additional increases will depend on the extent of the drought,” according to ERS. “This will in turn, affect the price of other crops, such as soybeans, and other inputs in the food supply such as animal feed.”
Although USDA does not yet have estimates on how this drought will affect retail food prices, ERS indicated that impacts for beef, pork, poultry and dairy, especially fluid milk, will be evident within two months. The full effects of the increase in corn prices for packaged and processed foods like cereal, corn and flour will likely take 10-12 months to move through to retail food prices.
As of mid-July, ERS reports that 62 percent of farms are located in areas experiencing drought and that 44 percent of cattle production and almost 40 percent of corn and soybean production are in areas experiencing at least severe drought.
“A striking aspect of the 2012 drought is how the drought rapidly increased in severity in early July, during a critical time of crop development for corn and other commodities,” stated ERS. “Over the month from mid-June to mid-July, the share of farms under severe or greater drought increased from 16 percent of all farms to 33 percent.”
ERS also noted that more than 80 percent of the acres of major field crops planted in the United States are covered by Federal crop insurance, “which can help to mitigate yield or revenue losses for covered farms.”
The service reported that “moderate to extreme drought conditions” cover more than half of the contiguous United States, including much of the Midwest from Western Nebraska to Ohio, and Southern Minnesota through Arkansas.
“In early July the corn crop was forecast to be the third largest on record, primarily due to record plantings,” according to ERS. “However, crop conditions have deteriorated since that time and new estimates will be available in early August.”
“What is clear is that the new marketing year will begin with historically low corn stocks and tight supplies,” added ERS.
USA forecasts corn and soybean prices for the 2012 marketing year to fall within a range of $5.40 -$6.40 per bushel for corn and $13.00 -$15.00 per bushel for soybeans.
For more details on the drought, go to http://www.ers.usda.gov/newsroom/us-drought-2012-farm-and-food-impacts.aspx
For the Palmer drought severity index go here: http://www.cpc.ncep.noaa.gov/products/analysis_monitoring/regional_monitoring/palmer.gif
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