Food price worry as U.S. corn, soybeans in worst state since 1988

U.S. corn and soybean crops, the world's largest, are in the worst condition since the last major drought in America's breadbasket in 1988, the government said on Monday, pushing up grain prices and raising the prospect of global food-price inflation.

Corn and soybean prices soared at the Chicago Board of Trade (CBOT), based on forecasts that thirsty crops will get no relief for at least another week, although a record-shattering heatwave abated over the weekend in the eastern half of the country.

On Monday, the U.S. Agriculture Department said its surveys showed only 40 percent of the corn and soybean crops were rated in good to excellent condition, the lowest rating at this stage of the season since the last severe U.S. drought in 1988.

Corn - used for everything from fuel ethanol to livestock feed - has been hit hard by dryness and heat in its critical pollination growth stage, when yields are established to a great extent and drought damage can be irreversible, analysts said.

Soybeans, a basic for fuels and feed and food use, mature a bit later than corn but have also baked under severe stress.

The CBOT July soybean contract set a record high of $16.65 a bushel on Monday, up nearly 3 percent on the day, and July corn jumped more than 5 percent to $7.77 a bushel. Corn prices have risen 30 percent in the past month to within striking distance of last summer's record price of $7.99-3/4 a bushel.

The implications for the world food system of U.S. crop losses are massive. The United States exports more than half of all corn shipped worldwide and is a major supplier of soybeans to China, the world's most populous country.

Food price inflation takes time to feed into the grocery counter, but dairy, meat and poultry - all dependent on corn for feeding animals - generally feel the brunt first. Drought-shortened U.S. crops would also reduce America's ability to supply food aid to needy nations at a time when South America's farmers have also been hurt by drought.

The drought is also likely to hit already strained U.S. government budgets through disaster-aid payments and hurt insurance companies selling crop insurance.

The Agriculture Department will issues its updated monthly crop production and yield estimates on Wednesday.

RAIN NEEDED QUICKLY

Missouri farmer Will Spargo said that only a couple of inches of rain had fallen over the past four months in southeast of the state. He said irrigating fields was expensive and inadequate but dried-up streams left him little choice on Monday but to pull water from wells to give parched corn and soybean crops a bit of moisture.

"A good two inches of rain from Mother Nature would sure cure a lot of problems," he said.

On Greg Sharpe's 400-acre farm in northeast Missouri, the drought has left the corn plants three feet (one metre) shorter than they should be. Sharpe said the combined heat and drought this spring and summer was the worst he had seen in 35 years.

"We could still have a good bean crop, but it better rain quickly," Sharpe said.

Sharpe's sole compensation may come from crop insurance. "It will be the biggest claim I ever had," he said.

The dry spell has seen U.S. crop ratings fall for five weeks in a row and wrecked what many crop analysts had projected to be a bumper crop this autumn after spring planting went smoothly.

Before the drought, the Agriculture Department estimated farmers would produce a near-record corn crop and harvest an average of 166 bushels of corn from 96 million acres. But traders said the recent price rise reflected a yield closer to 140 bushels to 145 bushels an acre.

"Moisture demands from the plant have increased during this time period and there is just no moisture in the soil to draw from," said Shawn McCambridge, an analyst at brokers Jefferies Bache. "You still need the moisture, especially at this time of year when the crop is pollinating.

The government said the rating on soybeans had dropped to 40 percent good to excellent from 45 percent the prior week.

Weather forecasts on Monday for the U.S. Corn Belt, which stretches from Nebraska to Ohio, were grim. While temperatures have moderated from a peak of triple-digit heat in recent days, in many stressed areas, rainfall is nowhere on the horizon.

Even where some rainfall has been predicted, it is not expected to help and some farmers on the southern tier of the Corn Belt have already plowed up withered corn into silage, a cheap feed.

"Where they could get some improvement, across the central and western Midwest, it doesn't look like they are going to get much rain," Kyle Tapley, an agricultural meteorologist with MDA EarthSat Weather/CropCAST, said.

"We got a break in the temperatures over the weekend but no rain of significance is in sight for the next seven days," said Jim Keeney, a meteorologist for the National Weather Service in Kansas City, Missouri.

"A drought doesn't have to be hot," said Sterling Smith, a grain analyst for Citigroup in Chicago. "A drought means no rain, and that's where we are." (Additional reporting by Kevin Murphy in Kansas City and Christine Stebbins, Mark Weinraub and Julie Ingwersen in Chicago; Editing by Peter Bohan and David Brunnstrom)

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