(Businessweek) – The severity of the worst U.S. drought in 56 years may be peaking, while its effects on corn and soybeans, the nation’s two biggest crops, may not be known until the harvests, Agriculture Secretary Tom Vilsack said.
The steadying of weather conditions may limit food inflation next year, which the U.S. Department of Agriculture predicted last month would be 3 percent to 4 percent, Vilsack said yesterday in an interview at the Iowa State Fair in Des Moines. It may also ease pressure to relax federal requirements for the use of corn to make ethanol, he said.
“The overall impact of the drought is beginning to decline,” Vilsack said. The uneven effects of the persistent dryness, which vary from farm to farm, make any crop predictions difficult, he said. “I’m not sure we know all we need to know to understand what’s happening with this crop.”
The condition of the soybean crop improved last week for the first time this year, and corn’s good-to-excellent ratings steadied at 23 percent, as rain and cooler temperatures reduced plant stress, the USDA said this week. The drought in states excluding Alaska and Hawaii eased last week to 61.8 percent from 62.5 percent, with improvement in all categories of severity except for the worst, the U.S. Drought Monitor reported.
Persistent Drought
Drought conditions will persist in much of the Corn Belt and Great Plains states through November, the National Oceanic and Atmospheric Administration said yesterday in a report. Lower temperatures and rain forecast for parts of the Midwest won’t be enough to snap the drought that has pushed crop prices up for months, said Joel Widenor, co-founder of Commodity Weather Group LLC in Bethesda, Maryland, this week.
Corn futures traded in Chicago have surged 60 percent since mid-June, closing yesterday at $8.075 a bushel, while soybeans have jumped 24 percent, prompting the United Nations to predict higher global food costs. Tyson Foods Inc. (TSN), the largest U.S. meat processor, said Aug. 6 profit will be lower after the company was forced to pay more for grain to feed animals.
Much of the damage has already been done to the corn crop, which passed through the critical pollination stage in the heart of the drought, while there’s still some hope for soybeans, which mature later in the season, Iowa Farm Bureau Federation President Craig Hill said this week in an interview.
Further Impact
Vilsack said that even as the USDA tries to ascertain the size and condition of this year’s harvests, it’s starting to look at the drought’s further impacts on the farm economy.
“Every day we learn more, every day we can evaluate more,” he said, adding that his department is starting to assess the consequences for next year’s crops, in terms of credit availability and planning.
The USDA, in a monthly report on Aug. 10, forecast a corn crop of 10.779 billion bushels, down 13 percent from 2011. The soybean harvest was pegged at 2.692 billion bushels, 12 percent smaller than last year. The harvests get under way next month.
Jose Graziano da Silva, director-general of the UN’s Food and Agriculture Organization, last week called for a suspension of U.S. ethanol-use rules to let more corn be used for food and livestock feed. Jay Carney, White House press secretary, in Iowa this week told reporters that the USDA and the EPA will be evaluating data to determine what should be done about requests for waivers from state officials and more than 175 members of Congress.
Mandated Use
A 2007 law mandates the use of 13.2 billion gallons of biofuels such as ethanol this year, rising to 13.6 billion in 2013. The measure is designed to help reduce the nation’s reliance on oil from overseas sources.
Vilsack, a former governor of Iowa, the biggest U.S. producer of corn, soybeans, pork and ethanol, said waiving the requirement may bring long-term harm to investment in biofuel production without having a major effect on food prices.
“My concern is that we send a signal to investors of perhaps, less confidence in the industry,” Vilsack said. “We need to see whether the market is responding” by rationing demand for biofuels in the face of high prices, he said.
Companies including Poet LLC and Archer Daniels Midland Co. (ADM)produced 819,000 barrels (34.3 million gallons) of ethanol a day in the week ended Aug. 10, down 15 percent from a record in December. Stockpiles sank 1.1 percent to 18.4 million barrels, the lowest since Dec. 30, Energy Department data show.
At least 25 U.S. senators and 156 House members have signed letters asking Lisa Jackson, administrator of the Environmental Protection Agency, to suspend or lower mandates on how much ethanol the country must use this year and next.
Corn is the biggest U.S. crop, valued at $76.5 billion in 2011, followed by soybeans at $35.8 billion, government figures show.
To contact the reporter on this story: Alan Bjerga in Washington at abjerga@bloomberg.net;
To contact the editor responsible for this story: Jon Morgan at jmorgan97@bloomberg.net
