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Midwestern Drought Turns Up Heat On Food Prices

11 July 2012 in Trading Ideas

Here’s one for the record books: There is now more of the contiguous US suffering from drought conditions than at any other time in the 21st century.

Recent analysis by the National Drought Mitigation Center shows nearly 56% of the 48 states is in some stage of drought, breaking a previous high set in 2003 (the survey reporting only began in January 2000).

According to Weather Channel estimates, that puts 205 million Americans in either a drought or “abnormally dry” area.

The continued surge of high temperatures and little precipitation through the Midwest and eastern US has made a bad situation worse, particularly for major agricultural regions.

Crop prices have surged recently on the speculation that fall harvests will be significantly lower. The Des Moines Register recently reported that corn and soybean prices have both jumped – with corn up 35% in the past month. Meanwhile, domestic stocks of soybeans are expected to drop to 15-year lows by the end of the summer.

As the Wall Street Journal recently reported, rising commodity prices could translate into higher food costs, especially as producers of beef, pork and chicken look to pass on higher animal-feed costs.

Meteorologists say the dry conditions in the Midwest started with a lack of snow, the Journal said, which usually replenishes soil with moisture.

The spring brought below-average rainfalls in states such as Illinois and Indiana, and the warmest average temperatures in the Midwest for the first five months of the year on record, according to the paper, citing the Midwestern Regional Climate Center.

If dry conditions continue, how will affect agriculture-related stocks?