Grain prices set records as U.S. drought, food worries spread

CHICAGO/WASHINGTON Fri Jul 20, 2012 10:28am IST

1 of 3. Corn plants are seen in a drought-stricken farm field near Evansville, Indiana, July 18, 2012.

Credit: Reuters/John Sommers II

CHICAGO/WASHINGTON (Reuters) - Grain prices pushed to record highs on Thursday as scattered rains in U.S. Midwest did little to douse fears that the worst drought in half a century will not end soon or relieve worries around the world about higher food prices.

Government forecasters did not rule out that the drought in the U.S. heartland could last past October, continuing what has been the hottest half-year on record.

"There's a greater chance that there is no relief possible or in sight" for the U.S. Midwest, Dan Collins of the National Oceanic and Atmospheric Administration's Climate Prediction Center said on Thursday.

More than half the United States was experiencing moderate drought or worse this week, according to the latest U.S. Drought Monitor report issued on Thursday.

More than 70 percent of the Midwest Corn Belt was in some stage of drought in the week ended July 17, up from 63 percent a week earlier. It adds up to the worst drought conditions in the United States since at least 1956, climate experts said.

"We don't have a reason for saying it's going to improve," Kelly Helm Smith of the National Drought Mitigation Center told a briefing on Thursday, adding that warmer conditions in the coming months might well exceed current levels.

CROPS PLOWED UNDER

That is bad news for farmers and consumers, with corn, soybeans and wheat in the United States -- the largest world exporter of those key crops -- baking in fields, losing yield potential daily or being plowed under for insurance claims.

Corn for September delivery at the Chicago Board of Trade set a record high of $8.16-3/4 a bushel, while soybeans for August delivery also set a record high of $17.49. Wheat for September rose 4 percent at $9.35 and set a four-year high.

The knock-on effect of such soaring prices was already being felt around the world, where drought has also hit other grain exporters who are starting to cancel previous sales and leave hungry countries in the Middle East and elsewhere scrambling.

"A lot of buyers waited in the hope that rain in the U.S. and east Europe would cool prices," one grain exporter said. "But this is not happening and the U.S. drought is not over."

The two big questions in the U.S. Corn Belt -- how low the harvest and how high the prices -- were still unanswered. But conditions were worsening as corn was failing to pollinate and soybeans, planted later, face their key growth stage in stress.

Iowa and Illinois, which together produce about a third of all U.S. corn and soybeans, continue to bake.

"The soil moisture in Iowa is pretty much gone so there's not much to keep crops going. Even if temperatures went down 5 degrees and rainfall increased 50 percent for the rest of this month, it might slow the rate of decline but it's not going to reverse the decline in crop conditions and the ultimate yield," said Harry Hillaker, Iowa state climatologist. "There's not much left of the Corn Belt that's in good shape."

In Williamsport, Ohio, Scott Metzger, 37, said it rained for about 45 minutes on his farm on Thursday and according to his rain gauge he got 1-3/10 inch of rain. But since May 13, he said, the farm has only had 2.1 inches of rain.

"This has been my toughest year of farming so far," he said, saying his corn crop was "finished" because it never pollinated.

WARMEST HALF-YEAR IN HISTORY

The National Oceanic and Atmospheric Administration said that the January-June period was the hottest half-year on record in the United States, with 29 states seriously affected.

Around the world, last month was the fourth-warmest June, NOAA experts said. Temperatures on land were the warmest ever recorded, while ocean temperatures were the 10th warmest. The Northern Hemisphere had its second-warmest June on record.

A La Nina pattern of cool water in the equatorial Pacific, which normally brings colder, wetter conditions to parts of the continental United States, ended earlier this year, and there is a good chance that an El Nino pattern could develop before year's end and prolong drought in the central United States, Collins of NOAA's Climate Prediction Center said on Thursday.

U.S. grain farmers, buoyed in recent years by soaring prices for grain and farmland, are in better shape to weather the storm than in 1988, the year of the last major drought.

But worst hit are likely to be dairy, pork, poultry and beef farmers, who are seeing their feed costs go through the roof and already taking action to reduce their herd sizes. Consumers may not see immediate food inflation, but it is coming.

(Additional reporting by Brendan O'Brien in Milwaukee and Kim Palmer in Cleveland. Writing by Peter Bohan; Editing by Lisa Shumaker)

(This story has been refiled to add the dropped word "not" in the first paragraph)

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