KC Federal Reserve Estimates Drought Impacts
The Kansas City Fed plainly addresses many questions floating around about drought's impact on commodities, consumers and infrastructure
Compiled by staff
Published: Aug 9, 2012
Under the thumb of paralyzing drought this season, farmers are experiencing significant market changes that are driving commodity prices up while commodity supplies are expected to tumble.
A recently released report from the Federal Reserve Bank of Kansas City explains the initial impacts that will be absorbed by consumers and producers in 2012. Report authors Jason Henderson, Omaha branch executive, and Nathan Kauffman, economist, explained that many factors have changed the market landscape this summer, including dwindling expectations of what was once rumored to be the most promising harvest in U.S. history.
DROUGHT DAMAGE: The drought hasn't just affected the corn crop this summer--a variety of ag sectors are experiencing market changes that will set the stage for longer-term effects. "Although crop prices have yet to match the 50-percent price increases in 1988, further reductions in harvest expectations could send crop prices higher," the authors noted. "Surging crop prices could offset yield losses and raise U.S. gross crop revenues above initial 2012 estimates."
The report indicates that higher food prices are expected next year, and consumer spending patterns will likely follow those changes in food price.
Though many factors will contribute to increasing food prices, concern is developing among producers regarding crop insurance's ability to offset revenue losses. The report estimates that some payments could reach more than $300 per acre.
Ranching, dairy and feeding operations will face different challenges. The authors report that 70% of all beef cows are in states that are have pasture conditions rated as poor to very poor. These conditions have impacted hay availability and quality. The report notes that alfalfa prices have risen 15% since May.
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Tagged: Drought, livestock, crop insurance
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