Farmers Abandon Fields Larger Than Belgium and Luxemborg, Food Prices Set To Surge Due to Drought
The worst drought in the United States in a half a century has led to the destruction of roughly one-sixth of the expected corn crop in America over the past month and will likely lead to a significant rise in the price of corn in the very near future.
To make matters even worse, much of the corn crop in the United States is genetically modified and thus susceptible to so-called “superbugs” and is the same strain which has been banned in multiple countries in the European Union.
This July has been the hottest in American history and has caused major damage to the corn crops throughout the United States making some farmers actually entirely abandon fields greater in size than the nations of Belgium and Luxembourg.
Obviously such a major reduction in the corn supply will certainly lead to a rise in the price of corn, it is simple economics. Unfortunately it doesn’t look like such a surge would diminish any time soon.
Even more unfortunate is the fact that corn is not the only commodity which will be negatively impacted by this drought and heat wave.
Soybeans – which, like corn are used in a wide variety of food products, animal feed and other products – have also been hit hard by the weather. It is likely that it will be the worst harvest for five years now and will also likely impact the prices of other processed goods due to the rise in the price of vegetable oil, which just happens to be made from soy.
The United States Department of Agriculture (USDA) is not taking this lightly and has already predicted record-shattering price increases.
Some of the largest manufacturers of food in the world including none other than Kraft, Nestle and Tyson, have already made it clear that they will ultimately pass the price increase on to the customers, according to the British Daily Mail.
The USDA has also decreased their projection for corn production by a whopping 2.2 billion bushels since just last month. Now they are down to an expected production of 10.8 billion bushels although that number could go down as well if this situation does not improve.
“We’re going to see very high prices,” said Joseph Glauber, the USDA’s chief economist, to the Financial Times.
Even more troubling is the fact that this will certainly have international implications far beyond the rise in domestic food prices here in America.
Indeed, one might even say that it will likely lead to riots in impoverished nations where increased food prices make it impossible to feed oneself and one’s family.
For instance, in 2007 and 2008 alone there were riots in over 30 nations linked to high food costs, but one United Nations official claims we shouldn’t be worried about it.
Jose Graziano da Silva, the director general of the UN Food and Agriculture Organization, said that the current crisis isn’t as severe due to lowered demand from abroad.
“We do not have the demand pressure from China and India as five years ago,” he said.
I hope he is right but unfortunately that assumption is based on believing that the drought and inhospitable weather will dissipate in the very near future, which is not necessarily true.
This is reinforced by the fact that the situation has actually been getting worse since the week starting July 29, when the USDA discovered that a whopping 48 percent of the nation’s corn crop could be classified as “poor” or “very poor.”
Furthermore, the USDA reported that 47 percent of the soybean crop was in “poor” or “very poor” condition.
These ratings are the worst we’ve seen since 1988 when a drought cut production by 20 percent and resulted in billions of dollars in losses.
The impact goes beyond just the price and supply of corn and soybeans. In fact, it also hurts the meat industry because with food prices so high and with pastures used for grazing drying up due to the lack of water and heat, some are forced to bring their animals to slaughter earlier than they would normally.
The Obama administration at least appears to be attempting to help the situation by opening up protected American lands to farmers and ranchers for grazing.
They have also reportedly called on crop insurance companies to hold back from charging interest and even engaged in an emergency loan program.
Farmers working in the 31 states where disaster areas have been declared have received low-interest emergency loans from the government as well.
Just how devastating this situation will eventually turn out to be and just how much the price of food will increase remains to be seen but I think it is safe to say that whatever happens, it will not be all that great.
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