Weekly drought figures released by the US Drought Monitor show the situation continues to be a problem with approximately 50% of continental US now suffering from a moderate drought or worse.
Despite recent precipitation bringing welcome relief and downgrading of the drought status in some parts of the country, the long term picture shows challenges remain.
Changing weather patterns and increasing likelihood of extreme weather events are pushing sustainable supply chain management up the agenda for many companies. The US drought is just one of many examples of how changing weather patterns can create clear and present supply chain risks.
Despite the rain from November to January, the American cultures should still undergo a major water deficit in 2013. The drought of 2012, the worst in the last fifty years, has resulted in the soil drying out which is difficult for the farmers to manage.
According to the Palmer Drought Index, 56% of the U.S. are still in drought at the end of February, mainly in the High Plains region. Kansas, the largest producer of wheat in the United States, but also Nebraska, Oklahoma and South Dakota are in extreme drought according to the latest report from the U.S. Drought Monitor.
The most recent Seasonal Drought Outlook indicates much of the area from southwest Minnesota to western Missouri through most of the Great Plains and Rockies will continue to experience drought conditions through the winter season. However, some improvement is expected on the eastern fringe of this area from North Dakota into Minnesota and Wisconsin, eastern Iowa into eastern Missouri.
The Midwest drought, the worst since 1956, sent corn prices to record highs earlier this year and choked traffic on the Mississippi River as water levels fell. It is now blamed for the worst crop conditions for U.S. winter wheat in at least 27 years, which will affect feed costs for cattle producers in the Great Plains.
Corn is still up 16 percent this year at $7.505 but has tumbled 12 percent from a record $8.49 a bushel on the Chicago Board of Trade and soybeans have jumped 34 percent to $16.24 but are now down 9.2 percent from a high of $17.89 a bushel.
“The damage has been done to the corn crop,” Peter Meyer, a senior director of agriculture commodities at PIRA Energy Group in New York, said by telephone today. “Now the weather is starting to become more of a factor in the soybean markets.”
The condition of the U.S. corn crop worsened for an eighth straight week amid the worst Midwest drought in a generation. The worst of the drought occurred when corn plants were going through the critical pollination stage last month. Soybeans, which normally are planted later in the Midwest, are just now entering reproductive stages, so they have more time to grow.
Ethanol production last week fell to the lowest level since the US government began tracking the data in June 2010 because the excessive heat and drought prompted plants to run at reduced rates.
In normal times, it’s said that up to 40% of the US corn crop is converted into ethanol which is then fed into cars. When the crop slumps this proportion is likely to rise. For a drought and a shortage of corn is not going to do much to change driving habits.
The Ministry of Agriculture estimates the soybeans production at 42.9 million tons this year, but professionals from Bolsa de Comercio de Rosario, the Rosario Board of Trade, and the first international port for soybeans, are more pessimistic. They expect around 40.5 million tonnes, against 52 to 53 million tons forecasted in spring.
Wheat traded in Chicago rose as much as 18 percent in the 10 days through May 21 on concern that the market is returning to the droughts of 2010. Russia and Ukraine curbed exports that year and prices more than doubled to $9.1675 a bushel by February 2011, the month when world food costs tracked by the United Nations rose to a record. Analysts surveyed by Bloomberg expect futures to gain 13 percent to $7.51 by mid-July.
Droughts withering wheat crops from the U.S. to Russia to Australia will probably spur the biggest reduction in global supply estimates since 2003 and drive prices to the highest in almost a year.
U.S. cattle inventories fell to the lowest in 60 years after a drought in the South scorched pastures, prompting ranchers to shrink herds. Cattle futures in Chicago surged to a record $1.29675 a pound on Jan. 25. Texas, the top state producer, had its driest year on record in 2011, according to the National Weather Service.
The drought destroyed pastures, forcing ranchers to sell or slaughter animals rather than incur feed costs driven up by corn, the main ingredient, which reached an all-time high in 2011.