It is rapidly shaping up to be another nail biting year for the world’s food supply. And you can blame it on the weather. How it affects you will depend on how bad it gets.
On Wednesday the U.S. Department of Agriculture will release the crop report for June and analysts believe the agency will slash the estimate of how many bushels of corn the farmer can expect from his fields this year, which will also mean a sharp cut in what will be held in the grain bins to meet future demand. Those stocks are already too thin.
Droughts, floods, and rising population have been hacking away at once comfortable global food stocks, which have led to steadily rising food prices. Burgeoning demand from China and India has also helped strain world food resources.
Despite recent weather woes around the world, the United States, the greatest granary the world has ever seen, could always be counted upon. Last year, things did look dire here, with a drought in Texas and a very wet spring in the Midwest. Crop prices began to march north but late in 2011, the American farmer pulled it off again and crop prices eased up in the fall.
This is what I wrote in a post last November: Nevertheless, it looks like this year’s harvest is in the bag; Mother Nature pulled a rabbit out of the hat for the United States once again. But contemplate for a moment, what would happen if the United States suffered a drought comparable to the one that withered Midwest crops in 1988?
Well, this year the Midwest is facing a horrific drought and corn, the basic building block of the global food system, has shot back above $7 a bushel and on Monday it rose 5.3 percent.
Reuters reportedthat the searing heat has finally abated this week but the skies were still stingy. “We got a break in the temperatures over the weekend but no rain of significance is in sight for next seven days,” Jim Keeney, a meteorologist for the National Weather Service, told Reuters.
This is how Bloomberg Businessweek summed it up: “Corn Growers in Hell as Midwest Heat Spreads.”
On Monday, the USDA, in another little known report, revealed in its “crop progress” report that there was no such thing.. Crops regressed. Corn in the field in the past week posted it worst deterioration in nine years.
Why worry? A bad crop and even a not so good crop would have a big impact on global prices. It could mean stronger food inflation in North America, although the prices spikes will always be felt more profoundly in poorer countries. In 2008 when demand and probably too much money were chasing too little food, the resulting price spike led to riots and tensions globally, especially across the Middle East. Some saw it as a root cause of the Arab Spring.
To be sure, the United States is a big country and farmers were planting a lot of crops this year so it is by no means a foregone conclusion that drought would persist to cause damage on par with the 1988 disaster, which cost the economy billions of dollars in damages.
Let’s revisit this after Wednesday’s report but, frankly, few were holding out for good news.