Parched farms from China to Iowa will put food prices under pressure

The drought is shrinking crops from the US farm belt to China’s Yangtze River basin, fueling fears of global hunger and weighing on the inflation outlook.

he latest alert comes from the US Midwest, where corn is so parched that the ears are missing and the soybean pods are fewer and smaller than usual. The somber report from the Pro Farmer Crop Tour helped push grain prices back to their highest levels since June.

The world is desperate to replenish grain reserves, which have been eroded by trade disruptions in the Black Sea and unfavorable weather in some of the largest growing regions. But an industry tour of US fields last week stunned market participants – who had been more optimistic – with reports of extensive crop damage from brutal heat and water shortages.

Meanwhile, drought is taking its toll in Europe, China and India, while the outlook for exports from Ukraine, a major shipper of corn and vegetable oil, is difficult to predict amid the Russian invasion.

“Even before this week’s news of the harvest tour, I was concerned that we wouldn’t see much stock renewal until 2023,” said Joe Faithr, a former chief economist at the US Department of Agriculture who is now a senior fellow at the International Research Institute for Food Policy in Washington . The “opening of Ukrainian ports is a welcome sign, but volumes remain far below normal levels”.

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

An index for grains and soybeans is trading nearly 40% above the five-year average, and the rise in grain prices has been a major contributor to global inflation. Food shortages contributed to the fall of the Sri Lankan government earlier this year, when the country ran out of hard currency needed to pay for imports.

The United Nations’ Food and Agriculture Organization index, which tracks food prices, fell last month from June but remains 13% higher than the same period last year.

In the US, corn is the dominant crop, and a lackluster harvest will spread up the global food supply chain, putting pressure on South America to produce bumper crops early next year. That’s especially true when China, suffering its worst drought since the early 1960s, is forced to import more grain to feed its vast herds of cattle and prop up domestic inventories.

After the recent crop spree, officials now estimate that US production will be 4% below the official government forecast. The surge follows drought-related shortages in US winter wheat as well as soybeans in Brazil, the top producer.

The global outlook for agriculture in 2023 has market watchers worried. For the first time in more than 20 years, the world faces a rare third consecutive year of the La Nina phenomenon, when the equatorial Pacific cools and causes a reaction from the overlying atmosphere. This could have dire consequences for droughts in the US and drought in the vital growing 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 weigh on agricultural production in the years to come.

Europe is currently experiencing what appears to be the worst drought in at least 500 years, according to a preliminary analysis by experts at the European Union’s Joint Research Centre. Several EU crops have been particularly hard hit, with maize yield forecasts 15% below the five-year average, the latest data show.

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

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


A farmer carries a sack of rice after harvesting it as the region experiences a drought outside Jiujiang city, Jiangxi province, China, August 27, 2022. REUTERS/Thomas Peter

India’s rice production has shrunk by 8% this season due to a lack of rainfall in some areas. The government is discussing export restrictions on so-called broken rice, which in India is mainly used as animal feed or to produce ethanol. Major buyers include China, which uses it primarily to feed its livestock, and some African countries, which import the grain for food.

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

“That Climate Thing”

In the US, Nebraska farmer Randy Huls, a Crop Tour competitor, is facing a smaller corn crop this year due to lack of rain. His long-term concern is how changing weather patterns might affect the farm he leaves behind.

“They predict the corn belt is moving north,” said Huls, 71, who grows corn, soybeans, wheat and hogs in southern Nebraska. “We could be a lot drier, and that’s that climate change thing they’re talking about.

“I doubt I’ll see that in my lifetime, but I always marvel at my son and especially at my grandchildren,” he added. “What will you see?”

(Adds a food price index in the eighth paragraph. Corrected a previous version of this story to correct a reference to the Black Sea in the third paragraph.)

Bloomberg Parched farms from China to Iowa will put food prices under pressure

Fry Electronics Team

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