Historic drought to bring higher food prices, experts say

[Stargazer]

http://www.foxnews.com/us/2012/07/17...s-experts-say/

Everything from breakfast cereal to roast beef will cost more as a result of the worst drought in 24 years, which has already prompted authorities to declare more than 1,000 counties in 26 states -- nearly two-thirds of land in the lower 48 states, stretching from Nevada to South Carolina -- natural disaster areas.

Only in the 1930s and the 1950s has a drought covered more land, according to federal figures released Monday. So far, officials say there's little risk of a Dust Bowl-type catastrophe, but crop losses could mount if rain doesn't come soon -- and that means across-the-board higher food prices.

The U.S. Department of Agriculture has lowered its crop projections for corn by 12 percent, prompting a 34 percent hike in prices in recent weeks. Since corn goes into so many food products for both humans and livestock, its effect on overall food prices is massive.

"If you like bacon [and] pork, you should buy it now, because by the fall you are going to be stunned at what it will cost," he wrote in an email.

In Illinois, the drought has already taken a heavy toll, with more than 80 percent of corn, soybean and other crops considered to be in fair condition or worse. Less than 10 percent of farm fields have adequate topsoil moisture. Farmer Kenny Brummer has lost 800 acres of corn that he grows to feed his 400 head of cattle and 30,000 hogs. Now he's scrambling to find hundreds of thousands of bushels of replacement feed....

The midwest state I reside in has 93 counties that are experiencing drought like conditions. I have over an hour compute to work that is near a major university that has an agriculture school... and the crops around here are starting to suffer.

[Stargazer]

http://www.msnbc.msn.com/id/48219314

Reuters) - Broiling heat blanketed much of the Midwest again on Tuesday, exacerbating the region's worst drought in more than 50 years and devastating corn, soy and other vital crops.....

...In Missouri, Governor Jay Nixon announced on Tuesday that all 114 counties in the state have been designated as natural disaster areas due to the drought, making farmers eligible for government loans or other assistance...

...In Iowa, Governor Terry Branstad convened a hearing to discuss the drought and its effect on the state's pork industry, which relies heavily on corn feed...

...About 55 percent of the contiguous United States is in a drought, just as corn plants should be pollinating, a period when adequate moisture is crucial. The United States ships more than half of all world exports of corn, which is made into dozens of products, from starch and ethanol to livestock feed....

..."We're moving from a crisis to a horror story," said Purdue University agronomist Tony Vyn. "I see an increasing number of fields that will produce zero grain."

Punishing indeed! Another blow to the economy that doesn't bode well...

[Dusty]

Nostradamus' 169th quatrain warned about this: "There will be drought and exorbitant prices in the land until the Wealthy One defeats the Evil One scarcely a week after All Hallow's Eve in the Year of the London Games."

[Stargazer]

Originally Posted by Dusty

Nostradamus' 169th quatrain warned about this: "There will be drought and exorbitant prices in the land until the Wealthy One defeats the Evil One scarcely a week after All Hallow's Eve in the Year of the London Games."

Exactly my point in posting it......... just thought this approach was a little less controversial...

[Dusty]

Originally Posted by Stargazer

Exactly my point in posting it......... just thought this approach was a little less controversial...

I hear that.

[cbtengr]

Ethanol producers are already feeling the pinch, some ethanol plants are getting ready to cease production as soon as current corn inventories are depleted. The truth of the matter is that corn is a heckuva lot more valuable as a food stock vs. being treated as an alternative fuel source. Corn is up more than 41% since May thats good news for the seller that is if there will be anything to sell. Farming is one of the biggest crapshoots in the whole world, overall we have had a lot more good years than bad. It's the magnitude of this drought though, it's not unusual to have pockets of drought or bad weather but to be so widespread.

drought_map.jpg

[Gypsy]

It's terrible here, and the heat is unrelenting. I think we had a total of 20 minutes of rain in the past month.

[tonyz]

Prayers out to all Midwestern members and guests.

We need those higher prices the way you need the heat without rain.

[Gypsy]

Originally Posted by tonyz

Prayers out to all Midwestern members and guests.

We need those higher prices the way you need the heat without rain.

Agree.

It's supposed to rain tomorrow morning (Chicago area) and only 85 degrees...before it goes back up into the high 90's - 100's. I'm ready to move to Alaska.

[Flagg]

There's going to be some interesting stuff happening with food moving forward.

We've seen huge price volatility in agriculture in recent years that has all kinds of contributing factors......excessively cheap credit, the effects of Peak Cheap Oil, government policy(ethanol), weather volatility, etc.

I think the current average cost for food in the US is circa 11% of income.

In many places around the world(including the many hundreds of millions of Chinese that are still dirt poor) current average food cost is in excess of 50% of income.

If food prices go up 50% relative to income(taking into account wage inflation) in the US and the wealthy west and people complain.

If food prices go up 50% relative to income in the poorest parts of the world and people go hungry, starve, riot, mutate into failed states, and governments fall.

IIRC Madagascar's government got dropped a few years back....and one of the bigger contributing factors was the economic crisis, rising food prices, and foreign attempts to mass purchase/lease Malagasy agricultural land...so a mix of direct and indirect food/agriculture issues(as well as others) contributed to the fall.

I think if we see food prices whipsaw higher again we will see food capable of being used quite effectively as a geopolitical weapon in a way maybe not too different from energy being used as a geopolitical weapon.

Back in the 80's the US supposedly(genuine/speculation I'm not sure) pushed the Saudis to pump hard, temporarily glutting the energy markets, crashing the price of energy, helping the US economy, while seriously hurting the Soviets main export earner at a time when they were in economic trouble....helping to crash the Soviet Union.

I wonder if there would be any realistic/possible scenarios where big picture policy(such as ethanol maybe?) could quietly and maybe even intentionally shape things to lead to food price spikes......where the wealthy west will complain, but could lead to insurrection in China and elsewhere?

Just my 0.02c......the %'s listed above are as I recall them from the last time I looked into it.

Originally Posted by Flagg

...

In many places around the world(including the many hundreds of millions of Chinese that are still dirt poor) current average food cost is in excess of 50% of income.

If food prices go up 50% relative to income(taking into account wage inflation) in the US and the wealthy west and people complain.

If food prices go up 50% relative to income in the poorest parts of the world and people go hungry, starve, riot, mutate into failed states, and governments fall.

...

Good thing we are not "the rest of the world," though I have no doubt the current POTUS would love to level the playing field, and his actions and policies are such that instead of raising the standards higher in those other countries, he would rather see fit to lower ours to the level of those dirt poor Chinese you mention.

As for the drought:

We could weather a drought and correlating spike in food prices if everything else was in check; it wouldn't be so bad if it were not so bad.

But eventually the drought will come to an end. If we have learned anything from fluctuating oil prices, that is that food and commodities in general will not revert back to lower prices when that drought is over.

[TOMAHAWK9521]

Another issue with the drought is the lack of feed for livestock owners out here in Rocky Mtn states. An old outfitter friend is getting very nervous at the lack of available hay to be found out in these parts. The grass on his property is completely fried from the hot dry summer we're having so he can't put his animals out to graze. If it gets much worse he may be forced to do the humane thing and put down all his horses and mules.

I spoke with other horse owners/breeders on the front range and they too have been searching for grass/hay as far north as Canada with no idea if they'll ever get the feed for their horses in time. The prices for hay are staggeringly high as it is and those who have a extra hay are understandably not letting it go for the time being.

[cbtengr]

Originally Posted by Sarski

As for the drought:

We could weather a drought and correlating spike in food prices if everything else was in check; it wouldn't be so bad if it were not so bad.

I like that, look for "O" to adopt that as his next slogan. Rumor has it that the govt. may open up the CRP acres to grazing and maybe even baling. The drought will pass but not without a lot of pain.

[Dozer523]

Originally Posted by cbtengr

I like that, look for "O" to adopt that as his next slogan. Rumor has it . . .

I KNEW IT!

It's Obama's fault!

[GratefulCitizen]

Originally Posted by Flagg

There's going to be some interesting stuff happening with food moving forward.

We've seen huge price volatility in agriculture in recent years that has all kinds of contributing factors......excessively cheap credit, the effects of Peak Cheap Oil, government policy(ethanol), weather volatility, etc.

I think the current average cost for food in the US is circa 11% of income.

In many places around the world(including the many hundreds of millions of Chinese that are still dirt poor) current average food cost is in excess of 50% of income.

If food prices go up 50% relative to income(taking into account wage inflation) in the US and the wealthy west and people complain.

If food prices go up 50% relative to income in the poorest parts of the world and people go hungry, starve, riot, mutate into failed states, and governments fall.

IIRC Madagascar's government got dropped a few years back....and one of the bigger contributing factors was the economic crisis, rising food prices, and foreign attempts to mass purchase/lease Malagasy agricultural land...so a mix of direct and indirect food/agriculture issues(as well as others) contributed to the fall.

I think if we see food prices whipsaw higher again we will see food capable of being used quite effectively as a geopolitical weapon in a way maybe not too different from energy being used as a geopolitical weapon.

Back in the 80's the US supposedly(genuine/speculation I'm not sure) pushed the Saudis to pump hard, temporarily glutting the energy markets, crashing the price of energy, helping the US economy, while seriously hurting the Soviets main export earner at a time when they were in economic trouble....helping to crash the Soviet Union.

I wonder if there would be any realistic/possible scenarios where big picture policy(such as ethanol maybe?) could quietly and maybe even intentionally shape things to lead to food price spikes......where the wealthy west will complain, but could lead to insurrection in China and elsewhere?

Just my 0.02c......the %'s listed above are as I recall them from the last time I looked into it.

Plenty of money sitting on the sidelines doing nothing.
Investing in business is unwise given the uncertainty.

Combine this with rising food prices and ridiculously cheap credit...
You've got prime conditions to inflate a bubble.