U.S. drought fuelling risk of global food price shock

A butcher cuts meat at Super Cao Nguyen, in Oklahoma City. The record drought gripping half the country will push food prices up by 3 per cent to 4 per cent next year, the U.S. Department of Agriculture said. Photo: AP  

Experts have warned that vital corn- and soybean-producing states in the U.S. are in the throes of intensifying drought conditions, a revelation that has resurrected concerns about sparking off another global food price shock. In 2008 it was precisely a spike in food grain in global markets that led to widespread rioting and political instability across nations.

In a report released last week the U.S. Drought Monitor agency noted that “The widest drought to grip the U.S. in decades is getting worse with no signs of abating.” Covering vast swathes of five states — Colorado, Iowa, Kansas, Missouri and Nebraska — the drought in these crucial crop areas is classified by the USDM as “severe” or worse.

Other badly-affected states include Illinois which saw its proportion of land in extreme or exceptional drought expand from eight per cent two weeks ago to a staggering 71 per cent as of last Thursday, the agency noted. At the macro level 20 per cent of the U.S. is said to currently be experiencing the two worst stages of drought – “extreme” and “exceptional.”

Impact on markets

Meanwhile, the impact of the drought on markets appeared to be showing already. According to media reports corn prices soared to an all-time high on Friday and traded at $8.24 a bushel on the Chicago exchange. Similarly analysts noted that soybeans “were also trading at record levels.”

With global grain stocks already at record lows and the federal government anticipating that a smaller amount of corn would be entering global markets over the forthcoming year owing to “a sharp drop in U.S. exports,” the probability of a global food price hike may have risen significantly.

Market inter-linkages were also seen as potentially amplifying the effect of the U.S.’ position as the world's largest producer of corn, as corn is used as feed for dairy cows, hogs and beef cattle, as a component in processed food, reports warned.

In comments made to The Guardian Robert Thompson, a food security expert at the Chicago Council of Global Affairs, said, “What happens to the U.S. supply has an immense impact around the world. If the price of corn rises high enough, it also pulls up the price of wheat.” Mr. Thompson added, “I think we are in for a very serious situation worldwide.”

Reflecting a less critical and more local concern, in a number of states from Arizona and Missouri to New York, residents appeared to be frustrated with the aesthetic impact of the drought too, as grass-painting contractors saw a jump in the demand for their services.

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Printable version | Sep 19, 2021 7:36:51 AM |

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