Drought is shrinking crops from the US farm belt to China’s Yangtze River basin, raising fears of global hunger and weighing on the inflation outlook.
The latest warning sign comes from the American Midwest, where corn has dried out so much that ears are missing and soybean pods are fewer and smaller than usual. The dismal report from the Pro Farmer Crop Tour helped push an index of grain prices to their highest level since June.
The world is desperately trying to replenish grain stocks depleted by trade disruptions on the Black Sea and adverse weather conditions in some of the biggest growing regions. But an industry tour of US fields last week surprised market participants – who were more bullish – with reports of widespread crop damage due to brutal heat and water shortages.
Meanwhile, drought is hitting Europe, China and India, while the outlook for exports from Ukraine, a major shipper of corn and vegetable oils, is difficult to predict amid Russia’s incursion.
“Even before this week’s news from the crop tour, I was concerned that we wouldn’t see much of a rebuild in stocks until 2023,” said Joe Glauber, a former chief economist at the U.S. Department of Agriculture who now serves as senior fellow at the Institute for International Food Policy Research in Washington. “The opening of Ukrainian ports is a welcome sign, but volumes remain well below normal levels.”
Traders always keep a close eye on the weather forecast, but this year vigilance has been heightened – every bushel counts. While corn, wheat and soybean prices have cooled from record or near-record highs set earlier this year, futures remain highly volatile. Bad weather surprises between now and the fall harvests are complete could send prices soaring again.
An index of grains and soybeans is trading nearly 40% above its five-year average, and rising crop prices have contributed significantly to global inflation. Already, food shortages contributed to the downfall of the Sri Lankan government earlier this year when the country ran out of hard currency needed to pay for imports.
The United Nations Food and Agriculture Organization’s index that tracks food prices fell last month from June, although it remains 13 percent higher than the same period last year.
In the US, corn is the most dominant crop and a poor harvest will have ramifications for the entire global food supply chain, increasing pressure on South America to produce bumper crops early next year. This is especially true if China, suffering its worst drought since the early 1960s, is forced to import more grain to feed its huge livestock herds and bolster domestic stocks.
After the recent crop tour, officials now estimate that US production will be 4% lower than the official government forecast. The pinch follows drought-related shortages in U.S. winter wheat, as well as soybeans in Brazil, the top producer.
The outlook for global agriculture in 2023 has market watchers worried. For the first time in more than 20 years, the world is experiencing a rare third consecutive year of La Nina, when the equatorial Pacific cools, causing a reaction from the atmosphere above it. This could have devastating consequences for drought in the US, as well as drought in the vital crop regions of Brazil and Argentina.
And while it is difficult to link each year’s weather to long-term climate patterns, analysts warn that global warming will pose a growing obstacle to agricultural production in the coming years.
Europe is currently in the throes of a drought that appears to be the worst in at least 500 years, according to a preliminary analysis by experts at the European Union’s Joint Research Centre. Several EU crops are being hit particularly hard, with maize yield forecasts 15% short of the five-year average, according to the latest figures.
“With energy prices remaining elevated at least through next winter, any significant shortfall in corn supplies will have devastating effects on the food and feed sectors,” said Abdolreza Abbassian, a food market analyst and former economist at the Food and Agriculture Organization of the United States. of Agriculture of the United Nations.
In China, historic drought has hit areas along the Yangtze River and the Sichuan Basin, hitting rice crops, the country’s main food grain.
India’s rice crop has shrunk by 8% this season due to lack of rainfall in some areas. The government is discussing restrictions on exports of so-called broken rice, which is mainly used for animal feed or to make ethanol in India. Top buyers include China, which uses it mainly to feed its livestock, and some African countries, which import the wheat for food.
India accounts for about 40% of the world’s rice trade and is the world’s largest exporter.
In the US, Nebraska farmer Randy Huls, who participated in the crop tour, is facing a smaller corn crop this year due to a lack of rain. In the long term, he worries about how changing weather conditions might affect the farm he leaves behind.
“They predict the corn belt will move north,” said Huls, 71, who raises corn, soybeans, wheat and hogs in southern Nebraska. “We could be a lot drier yet and that’s this climate change thing they’re talking about.
“I doubt I will see this in my lifetime, but I always wonder about my son and especially my grandchildren,” he added. “What will they see?”