According to the Earth Policy Institute, drought conditions have generated bleak corn yield estimates for the remainder of 2012. Corn yields for September 2012 are estimated at 123 bushels per acre, which would make it the lowest yield since 1995. Compare this yield to the highest ever value of 165 bushels per acre, which was last reached in 2009.
As a consequence, the price of corn has increased significantly. It reached a record high of $8 per bushel in the corn futures market back in July, and has fluctuated around that price since then. Another consequence is the expected fall in global grain supplies. Supplies are expected to fall to 432 million tons, or 69 days of global consumption.
The worst drought in fifty years has caused a decline in the stockpiles of crops such as corn, soybeans, rice and wheat, with the subsequent all-time increase in the prices of corn and soybeans. Good news for commodities investors.
The drought has also affected fuel and power production which, in turn, have a negative effect on food prices. Read more…
- Unfavourable weather behind the July rebound of the FAO Food Price Index – FAO Food Price Index [Food and Agricultural Organization of the United Nations]
- America’s disastrous corn harvest will hit world’s poor hardest [The Guardian]
- World food prices rising in response to drought damage in the US – Ole Hansen [TradingFloor.com]
- Global food reserves falling as drought wilts crops – Tony C. Dreibus and Elizabeth Campbell, Bloomberg [Futures Magazine]
- USDA slashes corn yield, production forecast – Bill Tomson [Market Watch]
Corn ending stocks for the US for 2010 are projected to be lower than corn demand for the same period, prompting a rise in corn prices. Corn prices increased about 55% for the June-November 2010 period. According to the Corn and Soybean Digest low crop yields explain the supply side. The demand side can be explained mainly by the increase of corn-derived ethanol production.