The drought that ravaged U.S. corn and soybean crops and spurred record prices may persist, threatening a recovery in production this year that’s needed to bolster global inventories, according to forecasters.
“Unless there’s a sudden change to very wet conditions, it sure looks like drought is going to be a feature going into the planting season, spring at least,” Bryce Anderson, an agricultural meteorologist at DTN, said in a phone interview from Omaha, Nebraska yesterday. DTN provides weather information on agricultural markets. “In the 1930s, there was a period of four or five years when drought was a feature,” Anderson said.
The worst U.S. drought since the 1930s last year lifted corn and soybeans to all-time highs, driving up food costs and prompting South American growers to boost plantings. Goldman Sachs Group Inc. said on Dec. 11 that there was a “growing risk” output may disappoint again in 2013, forecasting higher prices. The U.S. is the largest grower of corn and second-largest of soybeans, and Chicago futures are global benchmarks.
“There’s nothing in terms of changes in climate positions to suggest that the drought in the U.S. is going to be short-lived,” Jim Dale, senior risk meteorologist at British Weather Services, said in a phone interview from High Wycombe, England, citing computer models.
Corn, trading at $6.875 a bushel on the Chicago Board of Trade today, has lost 19 percent from a record $8.49 in August as global supply concerns eased. Soybeans, trading at $13.84 a bushel, have tumbled into a bear market, losing more than 20 percent from last year’s closing high of $17.6825. The oilseed peaked at $17.89 on Sept. 4.
The Palmer drought index, which tracks rain and temperatures to gauge the extent of drought conditions, fell to minus 4 in July, said Anderson, who correctly predicted an end to a La Nina weather pattern last year. History shows that in the years that the index had reached that level before, it took 18 to 51 months for soil moisture to recover, he said.
As of Jan. 5, parts of the Midwest, the largest U.S. corn-and soybean-growing region, and many parts of the South Plains and High Plains remained at minus 4 on the Palmer index, described as extreme drought, according to data on website of the College Park, Maryland-based Climate Prediction Center.
The drought in 2012, which covered almost 62 percent of the 48 contiguous U.S. states and was second in size only to the Dust Bowl of the 1930s, may continue into 2013 in the southern Great Plains, government climatologists said in December. Last year was the warmest on records going back to 1895 for the 48 states, according to a report yesterday from a unit of the National Oceanic and Atmospheric Administration.
U.S. corn production fell 13 percent to 272.4 million metric tons in 2012-2013, the lowest since 2006-2007, according to the U.S. Department of Agriculture, which will update figures on Jan. 11. The soybean harvest fell 4 percent to 80.9 million tons, USDA data show. Global corn stockpiles will fall to 117.6 million tons by Oct. 1, or 13.6 percent of projected demand for food, ethanol and livestock feed, the lowest ratio since 1974.
In Iowa, the largest U.S. corn and soybean grower, 85 percent of top-soil moisture was classified as short to very short, said Anderson, who tracks growing conditions using satellite images from agencies including NASA and indicators from the National Oceanic and Atmospheric Organization.
Parts of Iowa, which produces almost double the corn output of Argentina, the world’s third-largest shipper, and almost as much soybeans as China, was still in extreme drought as of Jan. 1, according to the government-backed Drought Monitor.
The dryness may also hurt winter wheat. The crop is in the worst condition since records began in 1985, according to USDA data. Investors may not realize the potential problems with global wheat supply, Abdolreza Abbassian, an economist at the United Nations’ Food & Agriculture Organization, said last month, predicting global inventories will drop to a four-year low.
Corn may rebound to $8.25 a bushel within six months, just 2.8 percent below the record, while soybeans may advance to $15.50, Goldman Sachs said in a Dec. 11 report. A Bloomberg survey of analysts published Dec. 18 showed the median high of forecasts for 2013 at $16.35 for soybeans and $8.25 for corn.