Drought and Inflation: A Looming Threat to Global Food Security

Just as the world was starting to breathe a sigh of relief after the tumultuous impact of the pandemic and Russia’s invasion of Ukraine on food prices, a new threat looms on the horizon. A drought spanning across America’s breadbasket threatens to exacerbate food inflation, further straining consumers’ wallets.

The dry spell has affected the wheat fields of the Great Plains and the Corn Belt in the Upper Midwest, leaving some areas with mere fractions of their regular rainfall as we approach crucial growing periods for corn and soybeans. This fear-inducing situation is reminiscent of the drought-stricken year of 2012, which saw crop prices surge dramatically.

“The next three to four weeks are going to be huge,” warns Angie Setzer, co-founder of Consus, a firm that advises farmers on crop sales and financial risk minimization.

Drought and Inflation: A Looming Threat to Global Food Security

After a period of ease in U.S. food inflation due to falling crop prices, the early days of June have brought renewed fears. Concerns of drought-stunted crops and abandoned fields have started driving up prices for ingredients used in everyday foods like dinner rolls, pizza dough, and oatmeal. Despite the recent scattered rainfall that offers a glimmer of hope for the salvaging of some harvests, price increases are likely to be a reality.

In the Chicago trading scene, contracts for future deliveries of soft red wheat, a key ingredient in baked goods, have increased more than 11% since the start of June. Simultaneously, oat prices have seen an 8.5% surge. Soybean oil, used extensively in frying, baking, and low-carbon trucking fuel, has shot up by an astounding 32%. Corn prices, however, have seen a 4.5% drop after recent rains reversed a steep rally earlier in June.

Drought and Inflation: A Looming Threat to Global Food Security

The situation is dire enough that some growers are contemplating the worth of their efforts given the potential of weak harvests. It is expected that farmers across the nation will abandon scorched fields of winter wheat at the highest rate since 1917, surpassing even the rates during the 1930s Dust Bowl.

In Syracuse, Kansas, Jason Ochs, a farmer with a 20,000-acre property, expects to reap just one-third of the wheat his family sowed. For Ochs, this year, marked by drought and inflation, is the worst in his 12 years of farming. He remains hopeful that recent rains will aid the dryland corn and grain sorghum on other parts of his property.

Drought and Inflation: A Looming Threat to Global Food Security

Ochs’s predicament underscores the unique challenge faced by farmers who must bet their livelihoods on the unpredictable weather. “If you’re running a normal business, you can get pretty good information before you put money into something. Not with weather,” he said.

The situation is further complicated by geopolitical developments. Crop prices approached record highs when Russia’s invasion of Ukraine disrupted one of the world’s premier grain-exporting regions. This led to inflation and threatened food supplies in lower-income countries until the United Nations brokered a deal that allowed Ukraine to continue exporting grains via the Black Sea. However, this agreement is set to expire in July, coinciding with typically hotter, drier weather for U.S. farms.

Speculators who had bet on a bumper crop this year to keep prices low are now scrambling to cover their risk, fueling the recent price surge. “They had huge short positions in corn and wheat just a month ago,” notes Dave Whitcomb, head of research of Peak Trading Research.

Current data from the U.S. Drought Monitor suggests that nearly one-third of the High Plains and almost two-thirds of the Midwest are experiencing at least moderate drought. Extreme or exceptional drought has parched soil across parts of Kansas, Nebraska, Oklahoma, Texas, and Missouri. This drought is testing the resilience of crossbred crops in Iowa, the U.S. corn capital. State climatologist Justin Glisan warns that they could need more “million-dollar rainfalls” to survive through the summer.

In the face of all this, there may be some relief for parts of the Midwest, but it could prove to be a double-edged sword. The National Oceanic and Atmospheric Administration has predicted a band of rain across the region, which could lead to flash floods in parts of Nebraska, Iowa, and Illinois. Intense precipitation runs the risk of becoming runoff rather than sinking into the soil and providing much-needed moisture.

“We’d greatly appreciate gentle thunderstorm rainfall,” Glisan adds, highlighting the delicate balance needed between combating drought and avoiding damaging floods.

The effects of this drought are not merely local but have global implications. As the U.S. is a major exporter of various crops, the drought can potentially influence food prices worldwide. While higher food prices might benefit farmers who manage to have a successful harvest, it could lead to increased food insecurity, particularly in lower-income countries already grappling with the economic effects of the pandemic.

Agricultural uncertainty also creates turbulence in the commodity markets. Speculators, who assumed a bumper crop would keep prices down, now find themselves in a bind. As Dave Whitcomb of Peak Trading Research explains, these speculators had large short positions in corn and wheat just a month ago, but the threat of drought has flipped the script. This has contributed to the recent rise in prices as these speculators rush to cover their risk.

The interconnectedness of geopolitics, climate change, and agriculture is starkly evident in this situation. The potential expiration of the Kyiv-Kremlin deal for grain export, happening at the same time as the U.S.’s peak drought season, threatens to create a perfect storm for food inflation.

The conditions we’re seeing underline the importance of investing in agricultural resilience and sustainable farming practices. Farmers are on the front lines of climate change, and their ability to adapt to these challenging conditions is paramount for global food security.

This is an evolving situation, and the coming weeks will be crucial in determining the extent of the drought’s impact on crops and subsequent food inflation. Stakeholders across the spectrum, from farmers to commodity traders to consumers, will be closely watching how the situation unfolds.

In conclusion, while the U.S. drought poses a significant challenge, it also provides an opportunity for innovation and investment in sustainable agricultural practices. As we navigate through this difficult period, the hope is that we emerge with stronger, more resilient agricultural systems capable of withstanding future challenges.

Author:Com21.com,This article is an original creation by Com21.com. If you wish to repost or share, please include an attribution to the source and provide a link to the original article.Post Link:https://www.com21.com/drought-and-inflation-a-looming-threat-to-global-food-security.html

Like (1)
Previous July 1, 2023 5:35 pm
Next July 2, 2023 6:17 pm

Related Posts

  • Lithium and Gold Shine Bright: The Lone Stars in H1 2023 Commodities Performance

    The dawn of H2 2023 provides us with the opportune moment to reflect on the half-year performance of the commodities market. According to our regularly updated Periodic Table of Commodities Returns, just two commodities yielded positive returns during the first half of the year: lithium and gold. Riding High on Lithium In H1 2023, lithium carved out a 10.81% return, a performance that crowned it the best-performing commodity. It was also one of only two commodities to record a positive return during this period; the other was gold. Other commodities…

    July 12, 2023
  • The Global Inflation Scare: How Central Banks are Reacting to Fading Shocks

    The recent global inflation scare has many economists and central banks on high alert. Inflation is one of the most important economic indicators and its effects are far reaching. As prices rise, the purchasing power of consumers decreases and wages struggle to keep pace. This can have a devastating effect on the global economy, leading to higher unemployment, higher debt, and slower economic growth. To combat these potential adverse effects, central banks are employing various monetary policies to try and keep inflation in check. What is Inflation and How is…

    January 20, 2023
  • Introduction to Futures Trading and Futures Market Operations

    What is Futures Market? The futures market is a financial market where participants can trade futures contracts, which are agreements to buy or sell assets at a predetermined price and date in the future. The underlying assets can be commodities, currencies, indices, or even financial instruments like bonds and stocks. The futures market enables participants to hedge against price fluctuations, speculate on future price movements, or lock in prices for future delivery. What is Futures Trading? Futures trading is the act of buying or selling futures contracts in the futures…

    March 6, 2023
  • Understanding the PCE and CPI Indices: The Key Differences and Implications for Investors

    Introduction The Federal Reserve (Fed) plays a vital role in shaping the United States’ monetary policy, and one of its primary objectives is to maintain price stability. To achieve this goal, the Fed closely monitors various economic indicators, with the Personal Consumption Expenditures (PCE) and Consumer Price Index (CPI) being two of the most significant measures. In this article, we will explore the PCE and CPI indices, highlighting their differences and implications for investors. The Personal Consumption Expenditures (PCE) Index Overview The PCE index, published by the Bureau of Economic…

    April 1, 2023
  • Seizing Investment Opportunities in the Future of Agri-Food Amid Global Challenges

    As we find ourselves on the brink of the mid-century, the world’s agricultural landscape is witnessing significant shifts. The escalating food demand driven by population growth, projected to peak at nearly 10 billion, and the burgeoning wealth of emerging economies is reinventing dietary preferences. Yet, with the remaining arable land being both limited and increasingly used for non-food-related purposes, innovative solutions are needed to meet these rising demands. From this perspective, the agri-food sector represents a promising investment opportunity, largely due to its potential for innovation and sustainable development. This…

    June 26, 2023
  • Rising Prices Got You Worried? Here Are 5 Strategies to Stay Financially Strong

    Introduction The headlines might suggest that inflation is finally showing signs of easing, but for many Americans, the impact of rising prices is still keenly felt. Recent research has revealed that a significant portion of the population is living paycheck to paycheck, struggling to make ends meet. While the headline inflation number may have decreased from its high in 2022, it’s essential to recognize that the rising cost of living isn’t going away anytime soon. In this blog post, we will explore five practical ways to cope with rising prices…

    September 18, 2023
  • Cultivating Profits: A Comprehensive Guide to Agricultural Investment Opportunities in the U.S. Stock Market

    Introduction The U.S. stock market offers a diverse range of agricultural investment opportunities. This article will delve into various sub-sectors of agriculture, including agricultural machinery, seed companies, pesticide and fertilizer companies, agricultural trading companies, and poultry, egg, and dairy companies. We will discuss the investment potential of several key players in each of these categories. I. Agricultural Machinery Stocks Deere & Company (NYSE: DE) Deere & Company, also known as John Deere, is the world’s largest manufacturer of agricultural machinery. The company produces a wide range of equipment, including tractors,…

    April 23, 2023
  • The Importance of Copper Price to the Global Economy: Analysis, Investment Targets, and Considerations

    Copper is one of the most important industrial metals in the world. It is used in a wide range of applications, from construction to electronics to transportation. The price of copper has been closely monitored by investors and economists alike, as it is considered a leading indicator of economic growth and activity. In this article, we will examine why copper price is so important to the economy and how it can predict and react to economic fluctuations. Why is Copper Price So Important? Copper is widely used in industrial applications,…

    February 22, 2023
  • Navigating the Soybean and Soybean Oil Market: Insights from the Latest USDA Report

    Introduction In the ever-evolving world of commodities trading, staying informed about the latest developments is paramount for investors and traders alike. This week’s USDA supply and demand report brought some important insights into the soybean market, shedding light on the impact of late-season weather and changes in demand dynamics. In this blog post, we’ll delve into the key takeaways from the report and discuss the implications for soybeans and soybean oil. US Soybean Yield and Pod Counts The USDA’s 2023/24 soybean yield projection came in at 50.1 bushels per acre,…

    September 18, 2023
  • Copper To Shine: Analyzing The Commodities Market For 2023

    As the global economy continues its healing process in 2023, investors are increasingly looking to commodities as a hedge against inflation. Copper is one of the most promising of these commodities, with analysts predicting that it will outperform most other metals by the end of the year. Read on to discover why copper could be set to shine in 2023 and how to capitalize on it in your portfolio. Introduction to the Commodities Market The commodities market is full of opportunity for those who know how to read it. For…

    February 1, 2023

Leave a Reply

Your email address will not be published. Required fields are marked *