By Alan Bjerga,
Aug. 17 (Bloomberg) -- The severity of the
worst U.S. drought in 56 years may be peaking, while its effects on corn and
soybeans, the nation’s two biggest crops, may not be known until the harvests,
Agriculture Secretary Tom Vilsack said.
The steadying of weather conditions may limit
food inflation next year, which the U.S. Department of Agriculture predicted
last month would be 3 percent to 4 percent, Vilsack said yesterday in an
interview at the Iowa State Fair in Des Moines. It may also ease pressure to relax
federal requirements for the use of corn to make ethanol, he said.
“The overall impact of the drought is
beginning to decline,” Vilsack said. The uneven effects of the persistent
dryness, which vary from farm to farm, make any crop predictions difficult, he
said. “I’m not sure we know all we need to know to understand what’s happening
with this crop.”
The condition of the soybean crop improved
last week for the first time this year, and corn’s good-to-excellent ratings
steadied at 23 percent, as rain and cooler temperatures reduced plant stress,
the USDA said this week. The drought in states excluding Alaska and Hawaii
eased last week to 61.8 percent from 62.5 percent, with improvement in all
categories of severity except for the worst, the U.S. Drought Monitor reported.
Persistent Drought
Drought conditions will persist in much of
the Corn Belt and Great Plains states through November, the National Oceanic
and Atmospheric Administration said yesterday in a report. Lower temperatures
and rain forecast for parts of the Midwest won’t be enough to snap the drought
that has pushed crop prices up for months, said Joel Widenor, co-founder of
Commodity Weather Group LLC in Bethesda, Maryland, this week.
Corn futures traded in Chicago have surged 60
percent since mid-June, closing yesterday at $8.075 a bushel, while soybeans
have jumped 24 percent, prompting the United Nations to predict higher global
food costs. Tyson Foods Inc., the largest U.S. meat processor, said Aug. 6
profit will be lower after the company was forced to pay more for grain to feed
animals.
Much of the damage has already been done to
the corn crop, which passed through the critical pollination stage in the heart
of the drought, while there’s still some hope for soybeans, which mature later
in the season, Iowa Farm Bureau Federation President Craig Hill said this week
in an interview.
Further Impact
Vilsack said that even as the USDA tries to
ascertain the size and condition of this year’s harvests, it’s starting to look
at the drought’s further impacts on the farm economy.
“Every day we learn more, every day we can
evaluate more,” he said, adding that his department is starting to assess the
consequences for next year’s crops, in terms of credit availability and
planning.
The USDA, in a monthly report on Aug. 10,
forecast a corn crop of 10.779 billion bushels, down 13 percent from 2011. The
soybean harvest was pegged at 2.692 billion bushels, 12 percent smaller than
last year. The harvests get under way next month.
Jose Graziano da Silva, director-general of
the UN’s Food and Agriculture Organization, last week called for a suspension
of U.S. ethanol-use rules to let more corn be used for food and livestock feed.
Jay Carney, White House press secretary, in Iowa this week told reporters that
the USDA and the EPA will be evaluating data to determine what should be done
about requests for waivers from state officials and more than 175 members of
Congress.
Mandated Use
A 2007 law mandates the use of 13.2 billion
gallons of biofuels such as ethanol this year, rising to 13.6 billion in 2013.
The measure is designed to help reduce the nation’s reliance on oil from
overseas sources.
Vilsack, a former governor of Iowa, the
biggest U.S. producer of corn, soybeans, pork and ethanol, said waiving the
requirement may bring long-term harm to investment in biofuel production
without having a major effect on food prices.
“My concern is that we send a signal to
investors of perhaps, less confidence in the industry,” Vilsack said. “We need
to see whether the market is responding” by rationing demand for biofuels in
the face of high prices, he said.
Companies including Poet LLC and Archer
Daniels Midland Co. produced 819,000 barrels (34.3 million gallons) of ethanol
a day in the week ended Aug. 10, down 15 percent from a record in December.
Stockpiles sank 1.1 percent to 18.4 million barrels, the lowest since Dec. 30, Energy
Department data show.
At least 25 U.S. senators and 156 House
members have signed letters asking Lisa Jackson, administrator of the
Environmental Protection Agency, to suspend or lower mandates on how much
ethanol the country must use this year and next.
Corn is the biggest U.S. crop, valued at
$76.5 billion in 2011, followed by soybeans at $35.8 billion, government
figures show.
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