The Implications Of The Summer Drought Are Devastating
Jul. 20, 2012
The US main agriculture region is experiencing the worst drought in more than half a century. Corn and soybean prices are being driven through the 2007-2008 highs to new record levels. The latest US Department of Agriculture estimates that 31% of the corn crop is in good to excellent condition compared with 40% a week ago. The soybean crop is not faring much better with 34% of the crop considered good to excellent compared with 40% previously.
Many consumers and investors do not fully appreciate the extent to which the modern economy is based on corn. It is not simply used as a substitute for gasoline and animal feed, but reports indicate a full three quarters of the products in a supermarket use corn in some form.
The roughly 50% increase in corn prices translates to a 1% rise in shopping bills according to economists at the USDA. The effect on specific food prices vary. It takes, for example, about 2.6 pound of corn to produce a pound of beef. That means that the increase in corn prices may see a 4-5% increase in beef prices. The increase in the price of corn (chicken feed) will boost egg prices 1-2% and a 2-3% increase in dairy prices.