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| Wasted corn field in the Midwest |
By Ron Nixon, The New York Times, July 25, 2012
WASHINGTON — The
worst drought in the United States in nearly a half-century is expected to
drive up the price of milk, beef and pork next year, the government said
Wednesday, as consumers bear some of the brunt of the sweltering heat that
is driving up the cost of feed corn.
Poultry prices are expected to rise more immediately, the government
said in a report. It estimated that consumer price indexes for chicken and
turkey would rise 3.5 percent to 4.5 percent later this year.
“The poultry category is the smallest animal category, and we expect
to see more of an effect this year because they grow the fastest and will be
first to be impacted by higher feed prices,” said Richard Volpe, an economist
with the Department of Agriculture.
Figures released Wednesday by the department
showed the largest percentage increase next year in its price indexes is
expected for beef, a rise of 4 percent to 5 percent. The price of dairy
products will increase 3.5 percent to 4.5 percent and eggs by 3 percent to 4
percent. Pork is expected to rise 2.5 percent to 3.5 percent.
The data is the first government estimate of how much prices could
rise next year because of the drought that has gripped most of the country this
summer, producing a lower-than-expected yield in corn, soybeans and
several other commodity crops.
Corn is now selling at about $8 a bushel — up 50 percent from where it
was priced at just a month ago. Soybeans are at a record price of almost $17 a
bushel, up from $13, just two months ago. Food prices over all rise about 1 percent for
every 50 percent increase in corn prices, because corn is used in dozens of
products, according to the Agriculture Department. Corn can be found in
everything from soft drinks to baby food, but nearly half of the crop is used
to feed livestock.
“These are very corn-intensive operations,” said Bruce A. Babcock, an
agriculture economist at Iowa State University, referring to raising livestock.
“So customers will see an increase in the prices they pay for beef and dairy as
the price of feed rises because of a drop in production.”
According to the government, 88 percent of the corn crop this year is
now affected by the drought and 77 percent of the crop for soybeans, used in
animal feed and some dairy alternatives, is affected.
The Agriculture Department slashed its estimate for what was supposed
to be the largest corn harvest on record. The government cut its corn yield
forecast to 146 bushels an acre for the year, the lowest corn yield since 2003;
the outlook last month was for 166 bushels. The soybean yield is projected to
be 40 bushels per acre, down from an estimate of 43.9 last month.
The most recent crop progress report shows that just 26 percent of the
nation’s corn crop is rated either in good or excellent condition. About 45
percent of the crop is rated very poor or poor.
Soybean conditions remain slightly better. About 31 percent of the
soybean crop is rated good to excellent, while 35 percent is rated very poor or
poor.
Because of the dry weather, cattle farmers in a number of states have
already started selling off or culling cattle because the drought has ruined
grass for grazing and the price for corn for feed has skyrocketed.
Daniel R. Glickman, the agriculture secretary for former President
Clinton, said that as farmers started culling or selling their herds, meat
prices could fall because of a glut of beef on the market. “So in the short
term, that’s good for customers,” Mr. Glickman said.
But the prices of beef, pork, chicken, eggs, and dairy are expected to
rise significantly later in the year, most likely around November, agriculture
economists say.
Ken Colombini, a spokesman for the National Corn Growers Association, a
Washington trade group, said that not all of the rise in food prices could be
attributed to a rise in corn prices. “A drop in corn production is a factor,
but animals are under other stresses related to the drought as well,” Mr.
Colombini said.
Ray Gilmer, a spokesman for the United
Fresh Produce Association, said fruit and vegetable producers, for
the most part, were not being affected by the drought. “Most of these
operations are irrigated and the water is highly regulated so we are not having
issues with our crops,” Mr. Gilmer said.
Despite the drought, many agriculture economists expect the farm
economy to remain strong, mainly because most farmers participate in the
federal crop insurance program.
Under the program farmers can obtain policies that cover drops in
prices or yields.
In 2011, 265.7 million acres of crops were insured, with payouts of
$10.8 billion because of weather related damage in Texas, Kansas and a few
other states.
For
a few lucky farmers, there could be an upside to the drought, Mr. Babcock said.
“By collecting insurance but selling the remaining crops at the now-record
prices, they could see a larger increase in revenue then they did last year,”
he said.
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