Parched farms from China to Iowa put pressure on food prices

Drought is reducing crops from the US agricultural belt to China’s Yangtze River Basin, stoking fears of world hunger and weighing on inflation prospects.

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(Bloomberg) – Drought is reducing crops from the US agricultural belt to China’s Yangtze River Basin, stoking fears of global hunger and weighing on the outlook for inflation.

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The latest flare comes from the American Midwest, where some corn is so parched that grain cobs are missing and soybean pods are fewer and smaller than usual. The dismal report from the Pro Farmer Crop Tour helped bring the grain price gauge back to the highest level since June.

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The world is desperate to replenish grain reserves depleted by trade disruptions in the Baltic Sea and adverse weather conditions in some of the largest producing regions. But an industry tour of US fields over the past week has stunned market participants – who had been more optimistic – with reports of extensive crop damage from the brutal heat and lack of water. .

Meanwhile, drought is wreaking havoc in Europe, China and India, while export prospects from Ukraine, a major shipper of corn and vegetable oil, are hard to predict amid the Russian invasion.

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« Even before this week’s crop tour news, I was concerned that we wouldn’t see much inventory rebuilding until 2023, » said Joe Glauber, a former chief economist at the U.S. Department of Agriculture, who is now senior researcher at the International Food Policy Research Institute in Washington. « The opening of Ukrainian ports is a welcome sign, but volumes remain well below normal levels. »

Read more: Smallest U.S. corn crop since 2019 signals rising food costs ahead

Traders always keep a close eye on weather forecasts, but this year the vigilance has intensified – every bushel counts. While corn, wheat and soybean prices have cooled from record or near-record highs seen earlier this year, futures remain highly volatile. Unpleasant weather surprises between now and the end of the autumn harvest could push prices up again.

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A grain and soybean index is trading nearly 40% above the five-year average and soaring crop prices have been a major contributor 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.

In the United States, corn is the most dominant crop and a poor harvest will have ripple effects throughout the global food supply chain, adding pressure on South America to produce bumper crops. early next year. This is especially the case if China, suffering its worst drought since the early 1960s, is forced to import more grain to feed its huge herds of cattle and shore up its national stocks.

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After the recent crop round, officials now estimate that US production will be 4% lower than the official government forecast. The pinch follows drought-induced shortages of U.S. winter wheat as well as soybeans in Brazil, the top producer.

The global agricultural outlook for 2023 worries market observers. For the first time in more than 20 years, the world is facing a rare third consecutive year of La Nina, when the equatorial Pacific cools, causing the atmosphere above it to react. This could have dire consequences for drought in the United States as well as drought in vital crop regions of Brazil and Argentina.

And while it’s difficult to link weather in any given year to long-term climate patterns, analysts warn that global warming will increasingly dampen agricultural production in years to come.

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READ: Drought threatens China’s crop when world can least afford it

For now, Europe is in the throes of what appears to be the worst drought in at least 500 years, according to a preliminary analysis by experts from the European Union’s Joint Research Centre. Several EU crops are particularly affected, with maize yield forecast 15% below the five-year average, according to the latest data.

“With energy prices remaining high at least through next winter, any major maize supply shortages will have a devastating impact on the food and feed sectors,” said Abdolreza Abbassian, food market analyst and former economist with the Food and Agriculture Organization of the United Nations. Organization.

In China, a historic drought has hit regions along the Yangtze River and the Sichuan Basin, hurting crops of rice, the country’s main food grain.

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Rice plantings in India have declined by 8% this season due to lack of rainfall in some areas. The government is discussing curbing exports of so-called broken rice, which is mainly used for animal feed or to produce ethanol in India. The main buyers are China, which uses it mainly to feed its livestock, and some African countries, which import cereals for food.

India accounts for around 40% of the global rice trade and is the world’s largest shipper.

« That Climate Thing »

In the United States, Nebraska farmer Randy Huls, on the crop tour, expects a smaller corn crop this year due to lack of rain. Longer term, he worries about the impact changing weather conditions could have on the farm he is leaving behind.

« They’re predicting 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 still and that’s this climate change they’re talking about.

« I doubt I will see this in my lifetime, but I always wonder about my son and especially my grandsons, » he added. « What are they going to see? »



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