Drought brings cornucopia of problems for the United States’ corn industry… It’s hard to miss the effects of the summer of 2012’s prolonged drought when you fly over the Midwest. Huge swaths of corn land are browned and unusable. And if you don’t have reason to fly across the country, you can be sure that you will not escape the effects of the drought when you visit the supermarket later this year. What initially started out as a great year for corn is quickly becoming the worst U.S. farmers have seen since in 17 years and is due to one of the worst droughts the country has experienced over the last 50 years.1
Early-Year Hopes Dashed
Earlier this spring the U.S. Department of Agriculture (USDA) enthusiastically predicted that 2012 would be one for the history books. Farmers planted 96.4 million acres of corn, expecting to reap the largest harvest in almost a century.3 Just a few months later, however, the USDA was forced to eat its words. The Department steadily cut estimates over the summer months. The nation’s farmers are now expected to produce about 10.8 billion bushels of corn. If this new estimate proves accurate, corn production will be at its lowest since 2006.4 While that doesn’t sound particularly bad, sheer production doesn’t tell the whole story. It is more accurate to think about corn yield. Given how much corn farmers planted this year, the new production estimates mean that corn yield (the measure of how much cereal is harvested per unit area of land under cultivation) will fall 15.5% to the lowest rates since 1995.5
The Main Culprit
In case you’ve been stuck inside all summer and didn’t notice, the U.S. is broiling. Over half of the Continental U.S. is now facing a severe drought–2012 had the hottest July since 1936.6 As a result of extreme temperatures and little rain, corn production has suffered. Although the drought stretches from Ohio to California, the hardest hit areas include major corn states like Illinois and Iowa.7 As of August 5th about 50 percent of the corn fields in the U.S. were in poor or very poor condition.8
Impact of Drought on Prices
The United States is the world’s largest producer of corn, soybeans, and wheat. As with corn, soybean production has been devastated by the drought—just a month ago, 3.05 billion bushels of soybeans were expected, now that number is down to 2.7 billion. Unfortunately, because the U.S. harvest contributes so greatly to the supply of these crops throughout the world, poor harvests in the U.S. have implications for food security abroad. World food prices are expected to rise in the coming year, and stockpiles are predicted to fall.10
Corn prices have already been seen to rise steadily as the drought drags on. The latest reduction in corn harvest estimates led to an increase in the price of corn futures on the Chicago commodity exchange to $8.30 a bushel. All told, there has been a 60% increase in prices from June to August.11 As dramatic as these numbers are, the real brunt of this blow will be felt next year, when grocery prices are expected to rise.12 “It’s scary when you see the numbers out today,” said one analyst, Terry Roggensack, of the Hightower Report in Chicago. He predicts that, barring a return to normal weather for the rest of the summer, prices for corn and soybeans could rise 20 to 25 percent in the months to come.13
This is especially concerning given that corn is one of the primary components in the modern cow’s diet. Rick Whitacre, a professor of agricultural economics at Illinois State University, said he believes the greatest impact will be in meat prices. He predicts an eventual 4 to 6 percent increase in the cost of pork and beef. As Professor Whitacre put it, “[y]ou’re going to see the ripple of this go out for quite a distance.” 15
In addition, corn often makes its way into our diets in unexpected places. Does the term “hydrogenated corn syrup” mean anything to you? If you look at almost any packaged food in the supermarket today you will notice that some form of corn or refined corn goes into countless food products. It isn’t a stretch to imagine that the impacts of the drought will be hitting producer and consumer prices hard in not-so-distant future. However, the effect of high corn prices on packaged foods may be harder to predict than the effect on meat prices due to the small volume of corn required for any one package. For example, even with today’s high corn prices, a single box of cornflakes would have only about 8 cents worth of corn.16
The Big Picture
The current drought is serving to highlight the importance of the U.S. Corn Belt in the security of the global food supply. The situation has also led to renewed criticism of U.S. climate change they were intended to slow is already forcing tough decisions about how our corn should be distributed. .
