Drought Stalks the Global Food Supply By Alan Bjerga on July 05, 2012
When rain doesn’t fall in Iowa, it’s not just Des Moines that starts fretting. Food buyers from Addis Ababa to Beijing all are touched by the fate of the corn crop in the U.S., the world’s breadbasket in an era when crop shortages mean riots.
This year they have reason to be concerned. Stockpiles of corn in the U.S. tumbled 48 percent between March and June, the biggest drop since 1996, the U.S. Department of Agriculture said last week. And that was before drought hit the Midwest. Chicago last month saw its first 100F June day since 1988, the year parched ground caused $78 billion in crop damage. The percentage of the corn crop with top-quality ratings was 48 percent as of July 1; it was 69 percent a year ago. And with little rain in the forecast, farmers can only hope to preserve what crops they can while watching corn futures rise 33 percent since June 15, to $6.75 a bushel.
This year’s dryness is intensifying just as the plants reach their most sensitive development stage. If ample rain doesn’t fall by mid-July, U.S. farmers may face catastrophe, says Matthew Rosencrans, a National Weather Service meteorologist who specializes in drought.
Food prices actually have fallen in recent months. World nutrition costs in May were 13 percent lower than their April 2011 peak, in part because of a global grain crop that was nearly 7 percent larger than the previous year. U.S. corn acreage is at its highest since 1937, and favorable weather is boosting staple-foods production in the European Union. Ample rice supplies may also lower food-supply risks, while a potential El Niño weather pattern later this year may help northern-hemisphere crops, says Abdolreza Abbassian, a senior economist with the United Nations’ Food & Agriculture Organization in Rome.
Still, a failed crop in the U.S., the world’s biggest exporter of corn and wheat, would raise food costs and stifle the U.S. farm boom that has been built on growing overseas shipments. If prices keep rising, that could mean trouble elsewhere around the globe, where failed crops can mean failed states.
In 2010 a drought that withered Russia’s wheat crop sent consumer prices in North Africa and the Middle East skyward, contributing to unrest that fed the Arab Spring. More than 60 food riots occurred worldwide between 2007 and 2009, when rapidly rising commodity prices wreaked havoc on family budgets, especially in poorer countries, where 70 percent of a household’s income may go to food. An extended U.S. drought would have a “tremendous” impact on world food prices, as a higher cost for one dollar-denominated export crop cascaded into others, Abbassian says. “The world looks to the U.S. as the safest source of supply,” he says. “Everyone watches the U.S. because they can rely on it. Without it, the world would starve.”
The U.S. isn’t the only place with problems. Early-season dryness again threatens to wither Russia’s wheat, and the worst start to India’s monsoon season in three years is endangering crops, raising the specter of a return to the export restrictions in the region that drove prices up sharply five years ago.
Adding to the uncertainty are government policies that have intentionally kept world crop reserves at levels lower than they were traditionally, says David Anderson, an agricultural economist at Texas A&M University. Unlike the 1980s, when many governments bought up supplies during boom years to store for poor harvests, inventories are being kept intentionally leaner so farmers will be more responsive to market forces. “It’s just-in-time inventory for farming,” he says. The system works fine, adds Anderson, as long as the weather cooperates.
Increasingly, in a global food supply chain where Iowa’s weather affects India’s prices, it seems that lean inventories pose serious risks. Longer term, the solution may lie in developing alternative regional sources of food production to augment supplies when a major grower, be it the U.S., Russia, Brazil, or some other country, goes down.
President Barack Obama, in his first address on global food security last May, announced $3 billion in pledges from companies including Cargill and Syngenta (SYT), for farm development in Africa over the next decade. “Fifty years ago, Africa was an exporter of food,” Obama said. “There is no reason why Africa should not be feeding itself and exporting food again.”
Until then, the world is watching the U.S. Corn Belt. A USDA crop production estimate that considers the drought in its calculations will be released July 11. Implicit in the numbers will be the forecast for famine.
The bottom line: With U.S. stockpiles of corn down 48 percent, concerns are mounting that this year’s crop won’t meet the world’s needs.
