As the worst drought in 50 years continues its onslaught, corn prices rose on Monday to new record levels. Drought-ravaged areas account for 90% of the US corn crop, and 40% of those crops sit in the worst-hit areas, according to the US Department of Agriculture.
Since June 18th, corn prices have risen over 50%. On Monday, the Chicago Board of Trade reported another 3% jump, to a record high of $8.17 per bushel.
Soybeans are not far behind. They’re up 20% in as many weeks, and they rose 1% on Monday to $16.17 a bushel.
Alex Sosnowski, senior meteorologist at AccuWeather.com stated: “Soybeans are second only to corn as the biggest agricultural product in the Midwest. While episodes of rain will continue over some agricultural areas in the Upper Midwest, Ohio Valley and East in the coming weeks, part of primary soybean growing areas will continue to be slammed by heat and drought.”
The next few weeks will tell whether the soybean crop will be decimated by the drought. Soybeans are flowering and setting pods now, and mid-August is considered the cut-off date for measuring lack of rainfall impact. If no rain materializes, yields are expected to be approximately 15% below USDA projections for the year.
This will affect an already lagging economy even worse. Commodities such as meat, peanut butter and other pantry staples will increase in price.
Meat has been rising in price even before the drought began to affect crop yield. Between June 2011 and June 2012, beef prices rose over 15% while chicken rose around 8%. Ranchers will sell off some of their stock to offset rising feed costs, which will create a glut in the market for a short time, but in the long-term, expect even higher prices.
This affects dairy production as well. Milk prices had begun to drop last year, but now with feed prices soaring, expect to see the price go up.
Fats and oils will also be affected, since they often contain soybeans. Market analysts expect a 4% to 5% increase in the cost of these commodities, which includes margarine and peanut butter.
USDA economist Rick Volpe added, “Soybean prices are under pressure from both the drought here and production problems in South America. Those prices were already going up.”
All we can say, America, is hold on to your pocketbooks. It’s going to be a rough ride in the near future.