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Grain prices push higher with drought

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news Mitchell, 57301
Mitchell South Dakota 120 South Lawler 57301

CHICAGO -- Tom Flora walked into one of his corn fields in Delphi, Ind., last week to survey land that until last month he expected would yield a bigger-than-average harvest. Eight rows in, he declared the crop a total loss.

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"I've never seen this," Flora, 63, said as he fingered the wilted brown leaves on a four-foot corn stalk that was half the normal height for this time of year, with cobs almost devoid of kernels. "This is good dirt here, but not this year. It's too dry. I doubt this will produce anything."

The worst Midwest drought since 1988 is baking farms from Arkansas to Ohio and threatening corn output that the United States said last week will be the second-largest ever. The price of the grain used in food for people and livestock is surging at a time when retail-meat costs already are near record highs. Global food prices are poised to rebound from a 21-month low in June because of weaker-than-expected supply in the U.S., the world's largest corn exporter, the United Nations said July 5.

With forecasters including AccuWeather Inc. predicting worsening conditions in the next month, corn traded in Chicago surged by $2.7875 a bushel since mid-June, or 55 percent. The rally is adding to pressure on the livestock industry because cattle feedlots are already losing as much as $200 an animal. Sanderson Farms, the third-largest U.S. poultry producer, said every 10-cent corn increase boosts costs by $2.21 million.

"We went from feeling like we were on top of the world with the best crop ever, to the worst ever," said Michael Wagler, 30, who farms several thousand acres in southern Indiana near Montgomery with father Dale and brother Lynford. "It looked really good through May and two weeks into June, and then we got 105-degree temperatures for 10 days, and that's when everything went backwards."

About 63 percent of the Midwest had moderate to extreme drought as of July 10, the highest since the government-funded U.S. Drought Monitor in Lincoln, Neb., began tracking the data in 2000. The Department of Agriculture cut its output forecast by 12 percent on July 11 after predicting a record harvest last month. The USDA estimated 38 percent of the crop was in poor or very poor condition as of July 15, the most for that date since 1988 and up from 3 percent on May 18.

Most of Indiana, the fifth-largest U.S. corn grower, got less than 50 percent of normal rainfall in the past three months, with some areas below 5 percent, High Plains Regional Climate Center data show. Wagler is plowing under 25 percent of his corn fields to plant soybeans, which need ample moisture this month and a delayed start to the season's first frost to result in a profitable harvest. While the strategy has worked before, "it's a long shot," he said.

Damaged crops may not mean losses for growers as crop insurance helps preserve farm income that the USDA predicted in February would be $91.7 billion this year, the second-highest ever behind the record of $98.1 billion in 2011.

Federal crop-insurance programs covered 265.7 million acres in 2011, and companies including Wells Fargo & Co. and Ace Ltd. paid out more than $10.8 billion last year, double the $4.25 billion in 2010, after drought on the Great Plains, Mississippi River floods and frosts in the South.

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