Drought Prompts USDA to Slash Crop Estimates
Brutal drought in the American Grain Belt, part of a downturn in crops worldwide, will bring the smallest U.S. corn and soybean harvest since the mid-1990s, the government said Monday, whipping a price stampede that could run far into next year.
U.S. crops might shrivel more without relief from a drought that has gripped one-third of the nation. The U.S. Department of Agriculture reported crop losses on every continent, ending a remarkable five-year run of large crops globally.
Smaller crops would have no immediate effect on U.S. consumer food prices, now running a modest 2.4% higher than last year.
But private consultant John Schnittker foresaw “market tension” for the next 18 months to find enough grain and oilseeds for food, livestock feed and industrial use. Food makers will pay more for grain for at least 15 months.
“We absolutely have to have good crops in 2003. Any further reduction will send prices sharply higher,” Schnittker said.
The forecast sent corn and wheat futures contracts in Chicago rocketing to five-year highs. Soybeans hit a four-year high.
Near-term corn futures jumped to nearly $2.61 per bushel, up from about $2.50 on Friday. Near-term wheat futures surged to nearly $3.52 per bushel, up from $3.445 on Friday.
Soybeans for delivery in November ended the day at $5.5275 a bushel, up a whopping 27.5 cents.
“The stage is set for some pretty high prices,” said Keith Collins, the USDA’s chief economist. “Right now, things look like we are going to have a much tighter market for the 2002 crop year and into the 2003 crop year as well.”
Surpluses amassed in the nation’s warehouses during the global grain glut could be depleted quickly.
The corn stockpile, now 1.6 billion bushels, was forecast to shrink to 767 million bushels by next September, the smallest tally since 1996. Only 155 million bushels of soybeans would be on hand in September 2003, the lowest “carry-over” from one marketing year to another since 1997.
Based on surveys of 22,000 farmers and firsthand examination of crops, the USDA forecast a harvest of 8.89 billion bushels of corn, 2.62 billion bushels of soybeans, 1.69 billion bushels of wheat and 18.44 million bales of cotton. A bale of cotton weighs 480 pounds.
If the forecasts prove true, it would be the smallest corn crop since 1995, the smallest soybean crop since 1996 and the smallest wheat crop since 1972.
The most-parched areas of the nation include the Plains states from Montana to Texas and portions of the Midwest.
The turnaround was the most dramatic for corn and soybeans, of which bumper crops had been expected this year. Wheat output has been waning for four years.
Smaller crops are certain to fuel a drive in Congress for billions in drought disaster relief for farmers.
Farm state leaders have been unable to agree on a bill amid fears of a backlash for seeking aid just three months after President Bush enacted a law expected to boost farm subsidy spending by 67%.
“The president and I continue to be very concerned about the drought situation,” Agriculture Secretary Ann M. Veneman told reporters. “We stand ready to work with Congress,” but any disaster aid must be offset by budget cuts, she said.
In the interim, Veneman announced $150 million in feed assistance for cattle ranchers in Colorado, Nebraska, South Dakota and Wyoming, where pastures have been turned brown by two years of scant rainfall.
Drought “is felt up and down every Main Street in South Dakota, the ripple effect of liquidation” of livestock herds, said Rep. John R. Thune, a Republican from that state.
“I just believe there is a lot more we have to do” to help the farm sector, he said.
Nationwide, a corn yield of 125.2 bushels an acre was forecast, 13 bushels less than last year, the USDA said. Hot weather hurt corn pollination in Nebraska, Kansas, South Dakota and North Dakota.
Soybean yields were forecast to slide in Nebraska, experiencing its worst drought in 50 years.
This year’s soybean crop was forecast to fetch about $5.60 a bushel at the farm gate, highest since a global glut sent grain prices skidding five years ago. The USDA said corn would average $2.50 a bushel, also the highest since 1997-98.
