“Although the drought is far from over and its final toll on U.S. agriculture is still uncertain, the 2012 drought will undoubtedly be etched into farmers’ memories for years to come.” That is the prognosis of the Federal Reserve Bank of Kansas City, and it is very true.
I remember the drought of1956 when Dad put a dollar bill and some coins on the kitchen table and said that was all the money we had because of the drought had burned up the corn. Young farmers and veteran farmers alike will remember the 2012 drought, and each for a different reason. The impact will be widespread across the U.S. economy.
The Kansas City Fed’s drought impact analysis by Jason Henderson and Nathan Kauffman identifies many sectors of the agricultural and U.S. economies that will be either touched or slugged by the drought. They say if historical patterns hold, U.S. consumers can expect to pay higher food prices over the next year.
What is the impact on crop production?
One of the most promising harvests in history has been ruined because of the loss of record acreage and an expected return of good yields. Since USDA’s cut of its projections in July, growing conditions have deteriorated further, with more yield reductions and acreage abandonment expected in coming weeks.
How high have crop prices risen?
With grain stocks at historic lows, declining crop production spurred a sharp rise in prices since the first of June, with a 40% gain in corn, 30% in soybeans, and higher wheat prices as the market anticipates its need for feed. However, prices have not matched the 50% rise seen in 1988, but could go higher than they currently are.
What are implications for crop revenue?
Crop prices will offset yield losses, and by the end of July, prices had risen faster than yields had declined. Compared to revenue estimates in June, corn revenue may be 12% higher and soybeans 3% higher. That was similar to 1988, but final revenue estimates depend on production and price response to harvest.
Will crop insurance offset the losses?
With shrinking yields, crop insurance will be a vital revenue source for many farmers, potentially boosting their gross revenue. But significant losses could emerge for farmers without crop insurance or those with over-hedged positions.
What is the impact on ranching?
They are heavily burdened by the drought because of stressed pasture and rising hay costs. Over 70% of all beef cows are in states with pasture conditions rated poor to very poor. Two thirds had production areas that are affected by the drought. Calves have been weaned earlier than usual and sent to feedlots.