The devastating drought afflicting more than half the country will drive up food prices and losses could eventually rival the 1988 drought that cost $78 billion in today’s dollars.
About 64 percent of the contiguous United States is in a drought, at the same time that the National Oceanic and Atmospheric Administration is reporting that 2012 is the hottest year ever recorded. The heat and lack of rain has sapped the production of corn and other crops.
“There does seem to be near-unanimous agreement from industry experts that this year's drought losses will surpass the $12 billion recorded in 2011," meteorologist Steve Bowen of Aon Benfield, a global reinsurance firm, told USA Today.
"Right now, it is difficult to say whether we end up reaching the loss levels of 1988 ($40 billion) and 1980 ($20 billion).”
If adjusted for inflation to 2012 dollars, Bowen says, those drought losses would be $78 billion and $56 billion.
"If the intensity of this year's drought is prolonged throughout the rest of the summer, it may not be out of the question to experience losses that rival something seen out of those 1980s events," Bowen says.
Corn prices have already soared 34 percent recently, and the drought is affecting 88 percent of the corn crop, The New York Times reported in a front-page story on Thursday.
The federal government cut its corn yield forecast to 146 bushels an acre for the year, the lowest corn yield since 2003. The outlook in June was for 166 bushels.
Corn is the staple animal feed, so meat prices are expected to increase as a result of the drought. Projections are for a rise in beef prices of up to 5 percent next year.
Cattle ranchers in some states have begun selling off or culling cattle because the drought has destroyed grass for grazing and the price of feed has increased sharply.
Milk prices will increase 3.5 to 4.5 percent, and eggs by up to 4 percent.
The drought is “one extra kick in the stomach” for low-income Americans,” Chris G. Christopher, senior principal economist at the consulting firm IHS, told The Times.
“There’s a lot of people in this country living paycheck to paycheck. This is not a good thing for them.”
The drought’s impact could be felt even more sharply abroad. The United States is a major exporter of agricultural products, including animal feed, and decreased U.S. production will lead to less supply and higher prices in other countries.
The hot and dry weather has put pressure on Congress to move ahead with a new 5-year farm bill. Several disaster relief programs expired at the end of last year, “leaving farmers and ranchers who have lost cattle or grazing land with few options without Congressional action,” according to The Times.
Richard Volpe, a U.S. Department of Agriculture economist, told USA Today: “In 2013, as a result of this drought, we are looking at above-normal food-price inflation. Consumers are certainly going to feel it.”
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