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Walter Charbonneau in one of his corn fields in Chatham, Ont. Thursday July 19, 2012. Charbonneau expects an average corn crop this year thanks to some last minute rain in southwestern Ontario. (Brent Foster For The Globe and Mail)

Walter Charbonneau in one of his corn fields in Chatham, Ont. Thursday July 19, 2012. Charbonneau expects an average corn crop this year thanks to some last minute rain in southwestern Ontario.

(Brent Foster For The Globe and Mail)

Drought sends grain prices soaring Add to ...

Walter Charbonneau expects to harvest nothing more than an average crop this year. And he’s thrilled about it.

The crippling drought hitting U.S. farms this year has pushed grain prices to record highs. Mr. Charbonneau, who farms about 133 hectares near Chatham, Ont., also faced the prospect of drought earlier this month, but rains this week came just in time. He and his neighbours will be able to salvage their corn and other grains, while farmers in Western Canada could put bumper crops in the bin if the weather here continues to co-operate.

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The U.S. Midwest’s severe drought will translate into higher food prices for consumers. And there’s growing worry that the world could face a food crisis. But for those farmers who can get their crops off the fields, a bonanza awaits.

“The corn prices have begun to skyrocket on the expected shortages,” Mr. Charbonneau said. “Last year we had good crops, and I will likely do better this year because we have a higher price,” he said, recounting Thursday morning’s showers (7.6 millimetres) and rain earlier in the week (25.4 mm).

Corn futures hit an all-time high of around $8 a bushel on the Chicago Mercantile Exchange Thursday, before pulling back slightly. September corn futures are up 60 per cent since mid-June as crops burn in the U.S. corn belt. The drought covers 61 per cent of the continental United States, according to the U.S. Drought Monitor, and the U.S. Department of Agriculture has designated 1,297 counties in 29 states as “disaster areas,” making qualified farmers in those regions eligible for low-interest emergency loans.

“Persistent and extreme June dryness across the central and eastern corn belt and extreme late June and early July heat from the Central Plains to the Ohio River Valley have substantially lowered yield prospects across most of the major growing regions,” the USDA said in a report.

The USDA last week shaved 1.8 billion bushels off its projected 2012-13 corn production forecast in July, and lowered its yield expectations to 146 bushels per acre, down 20 bushels from its June prediction.

Soaring grain prices are expected to ripple through the food chain in different ways.

Prices for poultry, pork and meat might be among the first to rise as the cost of animal feed – made from corn, wheat and soybeans – jumps. Reports earlier this week showed that the drought has already driven feed prices higher.

But it could be a year before the rise in wholesale prices is substantially felt in North American consumers’ pockets, depending on factors ranging from the size of food companies’ stocks to when they decide to start passing rising costs on to consumers, to how efficiently the market functions.

Globally, the impact can be more serious. “It doesn’t necessarily mean that people are going to go hungry immediately, but it does mean that they will eventually as it rolls out down the road,” said Mark Fried, an expert on food security policy at Oxfam Canada. “If people are spending between 50 and 75 per cent of their income on food as the poorest people do, if the price goes up, they’ll simply have to cut down on the amount of food they eat, because they won’t have the money for more.”

Mr. Fried said that on a global level, populations in Latin America and Africa would suffer the most from higher corn prices, although some are better prepared than others to withstand food price volatility thanks to contingency programs already in place.

Consumers in Canada won’t likely feel the pinch for a few months.

“The bottom line is, if you were to look at average data over time, it typically takes between six and 12 months to see the impact of higher commodity prices on food prices,” said Kenrick Jordan, a senior economist with Bank of Montreal in Toronto.

This all comes as American farmers like Stephen Tuttle watch their crops burn. The top half of his corn stalks have turned brown from the heat, while some stalks are brown top to bottom.

“Some corn plants even aborted complete ears – there’s no ears at all on the plant,” said Mr. Tuttle, who farms about 30 kilometres outside of Kansas City, Mo.

 

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From farms to food courts

Corn has myriad uses in a wide variety of foods and consumer goods, as animal feed and as a source for biofuel, with the latter two accounting for most of the corn consumed in the United States and Canada.

Food

From the humble corn tortilla to soft drinks, there are thousands of uses for corn and corn products. It’s a key ingredient in certain cereals, vegetable oil, candies and desserts, and the high fructose syrup is used in soft drinks like Coca-Cola. It can also be found in mayonnaise, ketchup, margarine and peanut butter.

Consumer goods

Corn products are also used in paints, detergents, photographic films, printing inks and other goods.

Biofuels

Some 40 per cent of all the corn produced in the United States and Canada goes into ethanol production, where it is mixed with gasoline to decrease the amount of pollutants in fuels for motor vehicles.

Animal Feed

Livestock and poultry consume about 40 per cent of the U.S. corn crop. Wheat and soybeans are also key grains used to produce animal feed.

Pav Jordan

 

 

 
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