How the drought could hit your wallet
With more than half the country in some state of
drought, farmers are feeling the impact on their livelihood and
consumers could expect to feel a hit in their wallet when they go to the
supermarket soon, experts say.
The U.S. is facing the largest drought since the 1950s, the National Climatic Data Center reported Monday, saying that about 55% of the country was in at least moderate short-term drought in June for the first time since December 1956, when 58% of the country was in a moderate to extreme drought.The hot, dry weather in June, which ranked as the third-driest month nationally in at least 118 years, according to the center, made the problem worse.
That has left farmers on the edge of their seat worrying about how much damage their harvests will sustain and how much of their livelihood they may stand to lose this year.
Throughout the Midwest, farmers are seeing signs of damaged crops. In the 18 states that produce most of our corn, only 31% of the crops were rated good or excellent this week, that’s down from 40% last week, according to the U.S. Department of Agriculture. This same time last year, 66% of corn crops were rated good or excellent. Soybean crops, which can be used in creating diesel fuel, are seeing similar troubles; 34% of the U.S. crop was rated good or excellent, down from 40% last week. This time last year, 64% were in that condition.
Derek Mullin, a farmer from Mount Pleasant, Iowa, told CNN’s Chris Welch that in a good year he can get 200 bushels of corn per acre, but this year he expects that number reduced by 25%.
That lost money will hurt him and his family and he said there is nothing he can do about it.
Is the drought hitting your area? Let us know how you're coping on CNN iReport.
"This is our personal business. It's right at our back door. As soon as we walk out of our house we see our investment and when it goes downhill it does take a toll on you,” he told CNN. “One of the hardest parts about this is you can do everything just right - planting dates, work hard at putting in a good crop, have a good stand established - and when mother nature works against you, then it all seems like it was for nothing."
Mullin's expected low yield of corn, and similar situations for other farmers, is specifically why this drought is getting a lot of attention, Richard Volpe, an economist with the USDA's Economic Research Service told CNN.
"Corn is a major input for retail food," he said. "Corn is used to make feed for all the animals in our food supply chain. As this drought reduces the harvest of corn, that would drive up the price of feed for animals and then in turn meat products."
The current drought has forced disaster declarations in 26 states and a spate of emergency conservation orders. And experts say it could also lead to serious economic repercussions the same way the National Oceanic and Atmospheric Administration says it did during the 1956 drought, which dropped crop yields about 50% in some areas.
Agriculture Secretary Tom Vilsack told CNN's Candy Crowley his heart goes out to the producers, ranchers and farmers who are dealing with something they have no control over.
"We’re really not going to know the full extent of all of this until the cotton’s picked, the beans and kernels are counted. But clearly our yields are going to be down.”
And if the crops aren’t there, you can expect to see some differences in the supermarket, Volpe said.
"You would see it first and heaviest for beef, pork, poultry and dairy," Volpe said, explaining that if you can't get the corn to feed animals, the meat market would be hit first and could have the longest-term impact.
Field corn, which is the dominant type of corn affected, is used to create feed for animals, but also corn meal, corn syrup and ethanol. Those products could also take a hit.
But Volpe wants to be clear that there isn't a one-to-one ration when it comes to the price of corn versus what you'll be paying for your meat.
"We understand historically, if the price of field corn goes up by 50%, which is a huge jump, we expect retail food in general to go up by about 1%," he said.
So you likely won't see the doubling of the price of a rib-eye steak, but over time, prices could accumulate.
And when might you expect to see this happen?
"For sure, the full effect of this drought will not be until 2013. It'll be 2013 when we see it and its in the whole supermarket," he said. "But if the price of corn shoots up, we’d see this effect within about two to three months. That doesn’t mean we’ll see a complete jump into food prices. It's just that we should start to see the effects."
Only July 25 the USDA will provide their monthly estimates of food prices, which would factor in drought conditions, Volpe said.
Volpe noted that you could also actually see some short-term lower prices on meat, noting that historically there is a small dip in the price of beef and pork before they start rising.
Ranchers "have these animals on hand, and animals that are market ready," he said. "What they do is figure out, OK well the cost of maintaining this herd in the next few months is going to shoot up because of the rising price of feed, if it make sense to do it now, get the guaranteed money."
Volpe notes that while there are many comparisons being made to the drought in the 1980s and the economic impact it had, it is important to keep in mind how much has changed since then and why that may mean you can't draw an exact correlation to how hard the economy could be hit by this drought. That's something that the agriculture secretary noted too, saying that technology had changed and conditions were different.
"The 1980s were a much different time, average food prices in the '80s were much higher than in recent years," Volpe said. "Fuel prices were much more volatile and the global economy and market for commodities were not as efficient."
While Mullin waits to see just how bad things will get he says that his saving grace, like other farmers, could be having federal crop insurance. But, he added, that only goes so far.
That’s one reason why Mullin, and others in his state, are anxiously waiting to see how state and federal authorities may be able to help.
Mullin said he is hopeful he may hear some answers from a drought conference being led by Iowa’s governor on Tuesday.
Vilsack said the biggest problem is that while the USDA has emergency loans and some other options to help, it lacks the full resources the government needs.
"The real challenge for us is the USDA does not have the tools it once had to help people through this difficult time," Vilsack told CNN.
Vilsack used the drought as an example to plead with the Senate to pass a farm bill that has already cleared the U.S. House of Representative, adding it was not enough to extend a previous bill that expired. He noted that the 2008 farm bill which expired had provided $4 billion in disaster assistance to 400,000 farmers and ranchers while it existed.
“Just extending the 2008 bill will not revive disaster programs for livestock producers” he said.
– CNN's Chris Welch contributed to this report.
More on the intense heat, drought:
Extreme weather: Get ready to see more of it
Past 12 months warmest ever recorded in U.S.
KCTV: Intense heat take its toll on Shatto's milk supply
WLUK: Christmas tree farmers battle hot, dry conditions
end quote from:
http://news.blogs.cnn.com/2012/07/17/how-the-drought-could-hit-your-wallet/
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