Monday, August 13, 2012

drought forces reductions in U.S. crop forecasts

NYTimes | With the nation’s worst drought in a half-century continuing to decimate crops, the government on Friday slashed its estimate of the soybean yield, made only a month ago, to the lowest level since 2003 and its estimate of the corn yield to the lowest level since 1995.

The smaller harvests will drive up prices for food and animal feed, analysts said. The prospects are also increasing pressure on the Obama administration to divert less corn to the production of the biofuel ethanol.

Agriculture Secretary Thomas J. Vilsack, visiting drought-stricken farmers in Nebraska on Friday, said that despite the reduced crop production, farmers are in better shape today than during the last major drought, in 1988.

“Last time only 25 percent of farmers had crop insurance, but this time over 85 percent are covered,” Mr. Vilsack said, noting that the government was still forecasting the eighth-biggest corn harvest ever.

But analysts warned of falling yields and spiking wholesale prices down the road. “It’s scary when you see the numbers out today,” said Terry Roggensack, an analyst at the Hightower Report in Chicago. “Unless there is normal weather and rain from here on out, I can easily see prices for corn and soybeans” rising 20 percent to 25 percent.

In the past month, as the country recorded the hottest month on record, the government lowered its production forecast for eggs, milk and pork. Beef production is expected to rise as ranchers cull more of their herds because of higher feed prices. But experts predict that the price of beef will not rise until next year as supplies tighten but feed costs continue to increase.

Last month, the Agriculture Department estimated that food prices would climb 3 percent to 4 percent in 2013. The overall economic effect in the United States, however, will be muted, given that American households generally spend only about 13 percent of their budgets on food and often elect to buy cheaper foods rather than pay higher prices.

On Friday, Capital Economics estimated that the rising food prices might knock 0.1 percent off the annual pace of economic growth.

Farmers in the hardest hit areas of the Midwest said that Friday’s report only confirmed what they already knew.

“We’ve lost 60 percent of our average production, if not 70,” said Nick Guetterman, president of the Johnson County Farm Bureau in eastern Kansas, who farms about 10,000 acres with his family. Mr. Guetterman said he expected crop insurance to cover his costs this year, but not much more. “You take what you get, that’s all you can do,” he said. “You go to church and pray.”