Drought dims U.S. farm economy hopes

Not Selling

“Usually at this time we’re selling planters and tillage and we’re not selling near what we have in the past because people are waiting to see how bad this drought is,” said Allen.

“I had a call from one of my farmers who usually buys a combine every three to four years,” said Allen. “If he doesn’t get rain he’ll probably bypass it.”

The acreage affected by drought has expanded rapidly, according to the government-funded U.S. Drought Monitor in Lincoln, Nebraska. In the high-plains states of North Dakota, South Dakota, Wyoming, Nebraska, Colorado, and Kansas, the areas designated as being in moderate to exceptional drought rose to 84 percent as of July 10 from 74 percent a week earlier.

In the Midwest, 63 percent of the region was in drought as of July 10, up from 53 percent on July 3. Key corn-growing states, including Indiana, Illinois, Iowa and Missouri, are listed as abnormally dry or worse. Yet within those regions, some states have fared better, such as Minnesota and North Dakota, where about 25 percent of each state is experiencing drought.

Still Assessing

Iowa Governor Terry Branstad said he’s still assessing the scale of the drought’s economic impact, which he said varies throughout the state. “We’re starting to become concerned and we’ve seen some deterioration of the crops,” he said in an interview July 14 during the National Governors Association Conference in Williamsburg, Virginia. The drought looks “to have hit at a very key time,” in the growth cycle of corn and soybean crops, said Missouri Governor Jay Nixon in an interview during the same conference, and “could be dramatically affected.”

Corn for December delivery jumped 3.9 percent to $7.6875 a bushel on the Chicago Board of Trade at 11:36 a.m. The grain has soared 52 percent since mid-June. More than three-quarters of the acres where corn is grown in the U.S. is in a drought zone.

The biggest U.S. crop, worth $76.5 billion last year, corn is the main ingredient in the feed of chicken, cattle and hogs. Meat, poultry and fish prices surged 7.4 percent last year and are expected to gain as much as 4.5 percent this year as rising prices make animal feed more expensive. Soybeans have risen 21 percent since mid-June and wheat has climbed 40 percent.

Food Prices

“Commodity prices play their way through to food,” said Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, in response to a question after a speech July 13. “So my immediate concern is that would put upward pressure on food prices and could contribute to unwanted inflation in that subset of the broader inflation numbers.”

The resulting prices could have an effect on food retailers such as Popeyes Louisiana Kitchen and McDonald’s Corp., which face higher meat costs. Cereal and beverage makers such as General Mills Co. and Coca-Cola Co. face elevated corn and sweetener prices.

The drought is eroding the profit outlook for Archer Daniels Midland Co. by boosting costs for the world’s largest corn processor, according to Topeka Capital Markets Inc., a broker-dealer with offices in Chicago and New York. The outlook for ADM’s adjusted earnings, based on the average of 13 analysts’ estimates compiled by Bloomberg, fell to $3.03 a share for the 12 months through June 2013, down 3.8 cents in the past four weeks, data compiled by Bloomberg show.

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