By Madison Ruppert: The
worst drought in the United States in a half a century has led to the
destruction of roughly one-sixth of the expected corn crop in America
over the past month and will likely lead to a significant rise in the
price of corn in the very near future.
To make matters even worse, much of the corn crop in the United States is genetically modified and thus susceptible to so-called “superbugs” and is the same strain which has been banned in multiple countries in the European Union.
This July has been the hottest in American history
and has caused major damage to the corn crops throughout the United
States making some farmers actually entirely abandon fields greater in
size than the nations of Belgium and Luxembourg.
Obviously such a major reduction in the corn supply will certainly
lead to a rise in the price of corn, it is simple economics.
Unfortunately it doesn’t look like such a surge would diminish any time
soon.
Even more unfortunate is the fact that corn is not the only commodity
which will be negatively impacted by this drought and heat wave.
Soybeans – which, like corn are used in a wide variety of food
products, animal feed and other products – have also been hit hard by
the weather. It is likely that it will be the worst harvest for five
years now and will also likely impact the prices of other processed
goods due to the rise in the price of vegetable oil, which just happens
to be made from soy.
The United States Department of Agriculture (USDA) is not taking this
lightly and has already predicted record-shattering price increases.
Some of the largest manufacturers of food in the world including none
other than Kraft, Nestle and Tyson, have already made it clear that
they will ultimately pass the price increase on to the customers,
according to the British Daily Mail.
The USDA has also decreased their projection for corn production by a
whopping 2.2 billion bushels since just last month. Now they are down
to an expected production of 10.8 billion bushels although that number
could go down as well if this situation does not improve.
“We’re going to see very high prices,” said Joseph Glauber, the USDA’s chief economist, to the Financial Times.
Even more troubling is the fact that this will certainly have
international implications far beyond the rise in domestic food prices
here in America.
Indeed, one might even say that it will likely lead to riots in
impoverished nations where increased food prices make it impossible to
feed oneself and one’s family.
For instance, in 2007 and 2008 alone there were riots in over 30
nations linked to high food costs, but one United Nations official
claims we shouldn’t be worried about it.
Jose Graziano da Silva, the director general of the UN Food and
Agriculture Organization, said that the current crisis isn’t as severe
due to lowered demand from abroad.
“We do not have the demand pressure from China and India as five years ago,” he said.
I hope he is right but unfortunately that assumption is based on
believing that the drought and inhospitable weather will dissipate in
the very near future, which is not necessarily true.
This is reinforced by the fact that the situation has actually been
getting worse since the week starting July 29, when the USDA discovered
that a whopping 48 percent of the nation’s corn crop could be classified
as “poor” or “very poor.”
Furthermore, the USDA reported that 47 percent of the soybean crop was in “poor” or “very poor” condition.
These ratings are the worst we’ve seen since 1988 when a drought cut
production by 20 percent and resulted in billions of dollars in losses.
The impact goes beyond just the price and supply of corn and
soybeans. In fact, it also hurts the meat industry because with food
prices so high and with pastures used for grazing drying up due to the
lack of water and heat, some are forced to bring their animals to
slaughter earlier than they would normally.
The Obama administration at least appears to be attempting to help
the situation by opening up protected American lands to farmers and
ranchers for grazing.
They have also reportedly called on crop insurance companies to hold back from charging interest and even engaged in an emergency loan program.
Farmers working in the 31 states where disaster areas have been declared have received low-interest emergency loans from the government as well.
Just how devastating this situation will eventually turn out to be
and just how much the price of food will increase remains to be seen but
I think it is safe to say that whatever happens, it will not be all
that great.
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