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US drought crop damage worsens

Washington, August 12, 2012

 

The worst US drought in more than 50 years has caused more damage than expected to corn and soybean crops, the US government said
 
The report has heightened calls for a suspension of ethanol quotas to head off another global food crisis.
 
While benchmark corn and wheat futures closed lower in Chicago, experts say food prices appear set to keep rising after a 6 percent jump last month, escalating a food-versus-fuel debate centered on a US law that dictates that about 40 percent of the corn crop must be converted into ethanol.
 
Hours after the US Department of Agriculture said the corn yield would likely fall to its lowest since 1995, worse than forecast, the governors of two poultry-producing states asked the Obama administration to waive the ethanol requirement, the first formal request for relief.
 
Pressure is also building internationally, as poorer countries bear a larger burden of rising food costs. The top United Nations food official, José Graziano da Silva, wrote in the Financial Times that an "immediate, temporary suspension" of the mandate could help head off another world food crisis.
 
Bill Lapp, president of Advanced Economic Solutions, said US food inflation would reach 4.5 percent next year, adding about $30 billion to domestic costs.
 
"Globally it's a much more direct impact, a more immediate impact," he said. "A greater deal of the food consumption is done without further processing so you can have a much more dramatic impact in global prices. That's what's compelling the United Nations to ask for some relief on the biofuel mandates."
 
Under the five-year-old Renewable Fuel Standard, US fuel companies are required to ensure that 9 percent of their gasoline pools are made up of ethanol this year, which means converting some 40 percent of the corn crop into the biofuel.
 
A White House spokesman said President Barack Obama was "looking at" the possibility of a waiver together with the Environmental Protection Agency and the USDA.
 
But with staunch farm belt support and an election looming, many political analysts say the odds of a waiver are low.
 
Meanwhile, the outlook for crops abroad is darkening. Japan said an El Nino weather pattern was under way and would last until winter, foreshadowing disruptive conditions that could harm crops from Australia to India.
 
Corn prices have surged more than 60 percent in the past two months as the United States reels from the extreme weather, while global soy supplies are also tight after drought in South America.
 
In the most authoritative statement yet on how the drought is affecting crops, the USDA estimated that the corn harvest would drop 13 percent from last year, a bigger fall than forecast.
 
"The numbers came in very low. The USDA knows there's a big problem out here; we all do. They are acknowledging a big problem," said Jack Scoville, an analyst at Price Futures Group in Chicago.
 
US inventories of soybeans, a key component of livestock feed from India to Indiana, would be the smallest in nine years after the USDA said only 2.69 billion bushels would be harvested this fall, 4 percent less than traders had expected. Stocks will drop to 115 million bushels, the second-smallest since 1973.
 
A mix of high oil prices, growing use of biofuels, bad weather, soaring grain futures markets and restrictive export policies pushed up prices of food in 2007/08, sparking violent protests in countries including Egypt, Cameroon and Haiti.
 
The UN's Silva said the world food system had not yet reached a crisis point, but reiterated warnings against the kind of export restraints and panic buying that extended the 2008 price surge. - Reuters



Tags: ethanol | corn | crop | soyabean |

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