U.S. Drought 2012: Farm and Food Impacts
The most severe and extensive drought in at least 25 years is
seriously affecting U.S. agriculture, with impacts on the crop and
livestock sectors and with the potential to affect food prices at
the retail level. Below is current information on potential impacts
of the drought on key commodities and food prices. We will update
the material periodically as information becomes available.
Current USDA estimates of the drought's impacts on the farm
sector are reflected in the September 12 World Agricultural Supply and Demand Estimates
(WASDE) report and the September 12
Crop Production report. ERS's August 28
farm income forecast is based on the August WASDE report and
will be updated in November.
Food Prices and
Consumers
With the ongoing drought expected to destroy or damage a portion
of the field corn crop in a number of States, an increase in the
farm price of corn has already occurred and additional increases
will depend on the extent of the drought. This will in turn, affect
the price of other crops, such as soybeans, and other inputs in the
food supply such as animal feed. Any effect on U.S. retail food
prices would depend on the severity of the drought and would begin
to appear on supermarket shelves in the fall.
- We will likely see the earliest impacts for beef, pork, poultry
and dairy (especially fluid milk). The full effects of the increase
in corn prices for packaged and processed foods (cereal, corn
flour, etc.) will likely take 10-12 months to move through to
retail food prices.
- The drought has the potential to increase retail prices for
beef, pork, poultry, and dairy products first and foremost - later
this year and into 2013. But in the short term, drought conditions
may lead to herd culling in response to higher feed costs, and
short term increases in meat supply. This could decrease prices for
some meat products in the short term. That trend would reverse over
time after product supplies shrink.
- Commodity prices are just one of many factors affecting retail
food prices. Historically, if the farm price of corn increases 50
percent, then retail food prices as measured by the Bureau of Labor
Statistics (BLS) in the Consumer Price Index (CPI) increase by 0.5
to 1 percent. Commodities make up less than 15 percent of the
average value of retail food purchases, so even if all commodity
prices doubled, retail food prices would increase by no more than
15 percent.
- Retail food price inflation has averaged 2.5-3 percent each
year on average for the past 20 years, and 2012 is no different.
Next year, we will likely see a slight increase above those
historical averages when food price inflation is expected to be
between 3 percent and 4 percent, with increases centralized in
animal products--eggs, meat, and dairy. That forecast will be
updated at the end of the month, but is currently below some of the
recent inflation spikes in 2004, 2007, 2008 and 2011.
- Sweet corn, eaten by humans, is distinct from field corn (used
for feed) and is not being heavily affected by adverse weather at
this point.
- The August CPI data from BLS does not reflect any substantial
price impacts of the drought. For most foods it remains too soon
for higher commodity prices to affect retail prices. Food-at-home
prices have not increased from January to August, reflecting a
decline in overall inflation since last year. However, since
July, egg prices have risen markedly and beef prices have fallen
moderately. Both of these movements are in line with
expectations.
- The September 25 update to ERS's food CPI
forecast provides forecasts for 2012 and 2013 and incorporates
information available on drought impacts at the time of
writing.
Listen to the USDA Radio report on the 2012 forecast and on the 2013 forecast.
View the USDA TV report on forecast food price changes.
Farms
About 80 percent of agricultural land is experiencing drought,
which makes the 2012 drought more extensive than any drought since
the 1950s. USDA's September 12 World Agricultural Supply and Demand Estimates
(WASDE) report reflects current estimates of the 2012 drought's
economic impacts. ERS's August 28
farm income forecast is based on the August WASDE report and
will be updated in November.
Highlights
- The drought rapidly increased in severity from June to July and
persisted into August. As of September 12, over 2,000 U.S. counties
had been designated as disaster areas by USDA in 2012, mainly due
to drought.
- As of August 14, 60 percent of farms are located in areas
experiencing drought.
- Based on the 2011 value of production, at least 70 percent of
both crop production and livestock production is in areas that are
experiencing at least moderate drought as of August 14.
- Severe or greater drought is impacting 67 percent of cattle
production, and about 70-75 percent of corn and soybean
production.
- More than 80 percent of the acres of major field crops planted
in the United States are covered by Federal crop insurance, which
can help to mitigate yield or revenue losses for covered
farms.
Details
- As of mid-August 2012, 60 percent of farms in the United States
were experiencing drought. About 17 percent of farms were in
counties where most of the land is under moderate drought; 15
percent of farms were experiencing severe drought; and 28 percent
were experiencing extreme or exceptional drought.
- A striking aspect of the 2012 drought is how the drought
rapidly increased in severity in early July, during a critical time
of crop development for corn and other commodities. The table shows
the progression from mid-June to mid-August of severe or greater
drought within the agricultural sector. While there has been some
easing of drought conditions during early September, for most crop
production exposure to drought during the June to August period
will determine drought impacts. From mid-June to mid-August,
the share of farms under severe or greater drought increased from
16 percent of all farms to 43 percent. Total cropland under severe
or greater drought increased from 20 percent to 57 percent, while
total value of crops exposed increased from 16 to 50 percent.
Farm Sector Exposure to Drought, Summer 2012
|
Percentage experiencing severe or greater
drought
|
|
Percentage of:
|
June 19
|
July 17
|
August 14
|
|
Farms
|
16
|
40
|
43
|
|
Acres of Cropland
|
20
|
51
|
57
|
|
Value of Crops
|
16
|
43
|
50
|
|
Value of Cattle
|
21
|
56
|
67
|
|
Values are percentage of national total.
Source: ERS calculations based on 2010 data from the Agricultural
Resource Management Survey (ARMS) and county-level U.S. Drought
Monitor data reflecting drought status as of August 14,
2012.
|
- Exposure to drought varies by commodity. Figure 1 shows the
distribution of drought severity for major crops, in value
terms.
- 21-22 percent of the value of corn and soybean production is in
areas with severe drought, while 49-53 percent of the value
of production is in areas currently experiencing extreme drought or
worse.
Figure 1: Share of National Value of Crop Production by Drought
Severity
Source: 2011
ARMS; U.S. Drought Monitor (August 14, 2012
drought status). Drought status is designated by the highest level
of drought affecting at least 1/3 of a county.
- Figure 2 shows the distribution of drought severity by
livestock type, in value terms.
- 31 percent of all livestock produced (by value) is in areas
with minimal drought, 18 percent in areas with moderate drought,
and about half is in areas with severe or worse drought.
- Poultry farms are the least likely to be in areas affected by
drought, while 78 percent of cattle production (value) is in areas
with moderate or greater drought. However, livestock operations
throughout the country are indirectly impacted by the drought
through increased feed costs.
- 12 percent of cattle are produced in areas with moderate
drought, and 67 percent are produced in areas with at least severe
drought.
Figure 2: Share of National Value of Livestock Production by
Drought Severity
Source: 2011
ARMS; U.S. Drought Monitor (August 14, 2012
drought status). Drought status is designated by the highest level
of drought affecting at least 1/3 of a county.
Crop Sectors
While only small additional reductions in forecast yields were
made in the September 12 World Agricultural Supply and Demand Estimates
(WASDE) report, the severe 2012 U.S. drought has had major impacts
on the production of many field crops this year, particularly corn,
soybeans, sorghum, and hay. What had started out as a promising
year for U.S. crop production, with high total acreage planted and
favorable early-season planting conditions has turned into one of
the most serious adverse weather situations in decades. Crop
production estimates for corn, soybeans, sorghum and hay declined
throughout the summer as the drought intensified, and by September
USDA's National Agricultural Statistics Service (NASS) production
estimates for corn were down 27.5 percent from those reported in
May, and production estimates for soybeans and sorghum fell 16
percent and 26.5 percent, respectively, over the same period.
These production declines reflect sizeable reductions in crop
yields per harvested acre as well as smaller-than-normal harvested
shares of planted cropland. Production estimates released with the
September 12 WASDE report show additional, but more modest,
production declines for most feedgrains and oilseeds compared with
the declines reported in July and August when severity of the
drought was becoming most apparent. Additionally, hay
production estimates are down 9 percent from 2011 levels as lower
yields offset increases in harvested acreage.
The 2012 production declines from earlier expectations reflect
sharply lower crop condition ratings, reported weekly by NASS. In
the first weekly rating of the corn crop on May 20, over 75 percent
was rated as good to excellent, while only 3 percent was in the
poor or very poor category. As of September 9, only 22 percent of
the crop was rated good to excellent with 52 percent rated poor or
very poor. Sharp declines in soybean crop ratings have also
occurred, with only 32 percent of the crop rated good to excellent
on September 9, compared to 65 percent in this year's first weekly
soybean rating on June 3.
Production of corn and soybeans, as well as other crops, is
particularly critical for supply, demand, and price conditions
during the 2012/13 marketing year because of relatively tight U.S.
and global supply conditions and low stocks at the end of the
2011/12 marketing year. Instead of building during the new
marketing year, stocks of corn and soybeans will remain low, with
reductions in all major use categories required to balance demand
with supply.
In anticipation of these market adjustments, corn and soybean
prices have advanced rapidly since earlier this summer.
Marketing-year average prices for the 2012/13 marketing year
(September 2012 through August 2013) were forecast by USDA in
the September 12 WASDE report to fall within a range of
$7.20-$8.60 per bushel for corn and $15-$17 per bushel for
soybeans. Marketing-year average prices in these ranges would be
record highs in nominal terms.
Corn
- After sharp reductions in 2012 corn yield and production
prospects in July and August, only a small additional downward
adjustment has been made in the September USDA assessment. Initial
expectations at planting time suggested yields averaging a record
166 bushels per acre, but deteriorating growing conditions
throughout the summer led USDA to reduce yield expectations by 20
bushels per acre in July, by an additional 22.6 bushels per acre on
August 10, and by another 0.6 bushels per acre on September 12.
Yields are now forecast at 122.8 bushels per acre, the lowest since
1995.
- Reflecting the early planting and rapid maturity of the crop,
15 percent of the corn crop had been harvested by September 9
compared with only 5 percent harvested by this date over the
previous 5 years. U.S. 2012 corn production is now estimated at
10.73 billion bushels, down sharply from early-season projections
of 14.8 billion, but only slightly below early August projections
of 10.78 billion.
- For the 2012/13 marketing year, total corn supplies were
forecast in the September 12 WASDE report at 12.0 billion
bushels - a slight increase (108 million bushels) from the August
10 WASDE estimates due to the early harvest boosting carry-in
stocks from previous estimates. This level of supply is about 11
percent below 2011/12 marketing-year supplies. Season-average corn
prices for the 2012/13 marketing year are forecast to fall within a
range of $7.20-$8.60 per bushel, up from $6.20-$6.30 for 2011/12.
Marketing-year corn prices in this range would be record high in
nominal terms.
See ERS Feed Outlook and data on production, use,
yield, and prices.
Soybeans
- A significant amount of soybean acreage is also in the
drought-affected region. After a large reduction in estimated 2012
soybean yields in August, only a small additional reduction has
been made in the September USDA assessment. Average yield is
estimated at 35.3 bushels per acre in September, down sharply from
initial forecasts of 43.9 bushels per acre, but only slightly below
the 36.1 bushels per acre forecast in August. Soybean yields at
this level would be the lowest since 2003.
- In contrast with corn yields, soybean yields typically are more
influenced by weather later in the summer - during pod development.
But across much of the U.S. soybean acreage, rainfall totals this
summer and soil moisture conditions were deficient over the entire
season. Thus, the soybean crop's potential may have been
stunted more than usual this year by the early moisture
deficit.
- Soybean supplies remain tight entering the 2012 harvest,
pushing soybean prices sharply higher for 2012/13, Season-average
prices are forecast at $15-$17 per bushel, unchanged from the
August WASDE report. Entering the 2012 harvest, beginning stocks
are estimated at only 130 million bushels - less than 5 percent of
last season's total use - and ending stocks are projected to fall
to only 115 million bushels, the lowest level of carryover stocks
since 2003/04.
- Prices for soybean products continue to be projected at high
levels for the 2012/13 year. Soybean oil prices are projected at
54-58 cents per pound, up from an estimated 52 cents per pound for
the 2011/12 marketing year, while soybean meal prices are projected
at $485-$515 per short ton, up from an estimated $397 per ton for
the 2011/12 marketing year.
See ERS Oil Crops Outlook and data
on production, use, yield, and prices.
Wheat
- No changes were made in estimated 2012 U.S. wheat production in
September. Wheat is widely produced across much of the
drought-affected area of the Midwest, but most of the wheat in this
region is harvested in the spring and early summer, so it reached
maturity before the dry conditions materialized.
- Fall harvested wheat (spring wheat) is produced mainly in Upper
Midwest and Northern Plains areas that have been relatively less
affected by the drought. Consequently, 2012 wheat yields estimated
at 46.5 bushels per acre are 2.6 bushels per acre above estimates
for the 2011 crop, and wheat production this year could exceed last
year's harvest by 269 million bushels, or more than 13%.
- Consequently, 2012 wheat yield and production prospects
increased marginally between July and August, up about 2
percent.
- U.S. wheat feed and residual use in 2012/13 is projected up
from the 2011/12 marketing year, due to larger 2012 U.S. wheat
production and the tighter market conditions for corn. U.S. wheat
exports are also projected higher than in 2011/12, largely in
response to reduced foreign wheat production. The result is a
reduction in U.S. wheat stocks at the end of the 2012/13 marketing
year from 2011/12 ending stocks.
- Wheat prices are projected at $7.50-$8.70 per bushel in
2012/13, up from $7.24 in 2011/12, due to higher corn prices and
stronger export demand resulting from reduced foreign wheat
production.
See ERS Wheat Outlook and data on
production, use, yields, and prices.
Cotton
- While conditions have been dry in many cotton producing regions
of the United States, they are much improved from the drought
conditions experienced in 2011. As a result, although September's
2012 yield estimates are slightly lower than in 2011, the 2012 U.S.
cotton production estimate is up 10 percent from last year due to
higher harvested acreage. This is in sharp contrast to 2011, when
drought conditions led to record high acreage abandonment.
- Despite the larger 2012 production estimate, U.S. cotton
exports are forecast up only marginally for 2012/13, because of
lower import demand from China. Consequently, U.S. ending stocks of
cotton are projected to build in 2012/13 and prices are projected
to decline. Compared with a marketing-year average price estimate
of 89.5 cents per pound in 2011/12, upland cotton prices are
projected in a range of 62-78 cents per pound in 2012/13.
See ERS Cotton Outlook and data.
Future Revisions to Field Crop Production Estimates
- Monthly revisions to this year's production estimates for major
U.S. crops will continue through the fall as NASS conducts
subsequent surveys of production prospects. Final NASS estimates of
the 2012 production of crops will be available in January
2013.
Livestock Sectors
The outlook for U.S. livestock sectors remains mostly unchanged
from the August USDA forecasts. Drought-induced prospects for
significantly higher feed prices and heat stress on crops,
pastures, livestock, and poultry are likely to restrain growth of
U.S. cattle and hog breeding herds as well as poultry and milk
production. Following on the heels of last year's drought in the
Southern United States, this year's lack of adequate rainfall over
more than half of the country has resulted in reduced corn and
soybean crops, higher prices for corn, soybean meal, and other
feed, and reduced availability of hay and pasture.
As of September 9, 58 percent of pastures and ranges in the
United States were rated poor to very poor, compared with 59
percent on August 4, just 38 percent at the same time in 2011, and
31 percent on average from 2000 to 2010. Lack of pasture is
inducing growers to place cattle on feed at lower weights; this
coupled with higher grain prices is further reducing prices of
feeder cattle in the near term. The impact of placing cattle on
feed sooner is likely to be more beef supply at potentially lower
prices in the next 6-9 months, but less beef and higher prices
later in 2013 and beyond.
- As of September 11, approximately 74 percent of cattle areas
were affected by moderate or more intense drought, up slightly from
72 percent on August 7.
- Feedlot operators are paying lower prices for cattle because of
high feed costs and increased supply and lower prices of cattle
being sent for slaughter. Feeder cattle prices for August averaged
$137.26, down from yearly highs of $155 in March of this
year. Higher imports of feeder cattle from Mexico continue
above a year ago and also contribute to low U.S. feeder cattle
prices.
- Heat stress, higher feed prices, and the potential for reduced
hog and poultry inventories continue to dampen the outlook for pork
and poultry production into 2013, with only small adjustments made
in the September USDA forecasts.
- Broiler production estimates for 2012 and 2013 have been
reduced to 36,767 and 36,355 million pounds, respectively, down
from 37,201 million pounds in 2011, due to higher feed costs.
- Hog farrowings (litters of pigs) are expected to decline in the
second-half of 2012 and the first three quarters of 2013 because of
high anticipated feed prices. Pork production for 2013 is
expected to be below both 2011 and 2012 at 22,905 million
pounds.
- High feed costs are expected to result in a small reduction in
milk production in 2013 and slightly higher prices than this
year.
See ERS Livestock,
Dairy and Poultry Outlook and Livestock & Meat
Domestic Data.
Further Information: