Record-breaking departures and a dearth of rain in many parts of the Midwest has not only put a strain on America's aging electrical infrastructure, but it has also been disastrous for sectors of U.S. agriculture. As Americans tried to keep cool in the cities, farmers were cutting down their crops. Midwestern corn farmers, for instance, saw that their maize was stunted because of the heat and lack of precipitation. Normally, corn stalks should be six feet tall by mid-summer. Instead, the ears of the corn were stunted, along with the puny stalks. Farmers thus cut them down for silage or turned them into the soil.
Since American agriculture is essential to the world economy, foreign analysts are taking note of the impact the current environment in the U.S. will have on other countries. Alexia Ash, of the London-based Executive-Analysis firm, released a report to clients highlighting how the drought in the US will have a global impact.
On July 13, the Department of Agriculture announced that a record 1,000 counties in 26 states had been declared to be in a state of emergency due to extreme drought. It is thus that the specter of rising food prices and hunger emerges from the parched American farmland. For 2013, prices are expected to rise for not only corn, wheat and soybeans (of which the US is remains the world’s largest exporter), but also meat and dairy products, as the world’s most common animal feed is corn.
According to Ash, the Obama administration and Congress currently have no visible plan to address the widespread drought. She reported that the House Agriculture Committee did discuss emergency legislation on July 25, which would focus on a one-year extension of current subsidies provided under the farm bill as well as disaster aid for drought-stricken farmers.
Said Ash, "However, such legislation is not likely to pass, due to lack of support in Congress, as well as the approaching summer recess that begins on 3 August. The farm bill, which defines the core agricultural policy of the federal government and is up for renewal on 30 September, has been stalled in the House of Representatives, an unprecedented move that is indicative of the political stalemate currently obstructing traditionally routine pieces of legislation from passage. If the bill is not renewed or extended by the deadline, many subsidy and assistance programmes would automatically lose funding."
The effect of such inaction by the U.S. government will reverberate throughout the world, wrote Ash. "Increased food prices raise risks of civil unrest worldwide, as was widespread in 2008 when grain prices nearly doubled. They also raise contract frustration and currency risks in those countries where the government subsidises food prices. Mexico subsidises corn prices, while Venezuela imposes a price ceiling on corn. In addition, countries such as Egypt subsidise cooking oil, which is often made from corn."
The 2012 corn crop is projected to have been reduced by 30% because of the drought. U.S. corn reserves hit an eight-year low in March 2012 of 6 billion bushels. Compounding the effects of the current drought, the reserves are down 7.9% from the same time period in 2011. Reserves had been consistently declining, in part due to increased demand for corn in the production of ethanol.
Farmers had expected a record harvest of corn had been anticipated for 2012, even while nature threw them a curve ball. Farmers had been counting on a bumper crop to replenish stockpiles. The U.S. accounted for 53.8% of corn exports in 2010, with its largest customers being Japan, Mexico, South Korea, Taiwan, and Egypt, by order of volume. The U.S. exported 45.3 million metric tons of corn in 2010-11. The next largest corn exporters were Argentina (15.2 million), Brazil (11.6 million), Ukraine (5 million), and India (3.4 million). It is unlikely that alternative exporters will be able to make up the shortfall in supply left by the reduced U.S. crop.