U.S. Drought 2012: Farm and Food Impacts
The most severe and extensive drought in at least 25 years seriously affected U.S. agriculture, with impacts on the crop and livestock sectors and with the potential to affect food prices at the retail level. Below is information on impacts of the drought on key commodities and food prices.
Current USDA estimates of weather impacts on the farm sector are still reflected in the monthly World Agricultural Supply and Demand Estimates (WASDE) report and the Crop Production report. ERS's February 11, 2013 farm income forecast reflects information in the January 2013 WASDE report, and the forecast will be updated in August. Looking ahead, the 2013 impacts of weather depend on precipitation patterns over the next several months (spring to early fall for many field crops), and will also depend on the response of producers and markets to weather conditions and yields.
Food Prices and Consumers
The 2012 drought destroyed or damaged portions of the major field crops in the Midwest, particularly field corn and soybeans. This has led to increases in the farm prices of corn, soybeans, and other field crops and, in turn, led to price increases for other inputs in the food supply such as animal feed. Though we have already seen some price increases for meats and animal-based products in the fourth quarter of 2012, most of the impacts on retail food prices are expected to occur in 2013.
- We will likely see the largest impacts for beef, pork, poultry and dairy (especially fluid milk). The full effects of the increase in corn prices for packaged and processed foods (cereal, corn flour, etc.) will likely take 10-12 months to move through to retail food prices.
- The drought has the potential to increase retail prices for beef, pork, poultry, and dairy products throughout 2013. Drought conditions led to herd culling in response to higher expected feed costs, and this liquidation led to temporarily reduced prices for beef and pork in the months of August and September. However, the October CPI report indicated that the impact of the liquidation has ended and prices for beef and pork are now expected to increase through 2013.
- Commodity prices are just one of many factors affecting retail food prices. Historically, if the farm price of corn increases 50 percent, then retail food prices as measured by the Bureau of Labor Statistics (BLS) in the Consumer Price Index (CPI) increase by 0.5 to 1 percent. Commodities make up less than 15 percent of the average value of retail food purchases, so even if all commodity prices doubled, retail food prices would increase by no more than 15 percent.
- Retail food price inflation has averaged 2.5-3 percent each year on average for the past 20 years, and 2012 was no different. In 2013, we will likely see a slight increase above those historical averages when food price inflation is expected to be between 3 percent and 4 percent, with increases centralized in animal products--eggs, meat, and dairy. That forecast will be updated at the end of each month, but is currently below some of the recent inflation spikes in 2004, 2007, 2008 and 2011.
- Sweet corn, eaten by humans, is distinct from field corn (used for feed) and is not being heavily affected by adverse weather at this point.
- Of the major categories expected to reflect the largest increases due to the drought--beef, pork, poultry, other meats, eggs, and dairy (especially fluid milk)--all have increased steadily since September 2012 except for pork. This likely indicates that we are seeing price impacts of the drought, given that many other food price categories have been flat over that same time period and the all-items CPI has fallen.
- Monthly updates to ERS's food CPI forecast provide forecasts for 2012 and 2013 and incorporate information available on drought impacts at the time of writing.
Listen to the USDA Radio interview with Richard Volpe, ERS Consumer Price Index analyst.
View the USDA TV report on forecast food price changes.
Farms
About 80 percent of agricultural land experiened drought in 2012, which made the 2012 drought more extensive than any since the 1950s. USDA's monthly World Agricultural Supply and Demand Estimates (WASDE) report reflects current estimates of weather impacts. ERS's February 11, 2013 farm income forecast reflects information in the January 2013 WASDE report, and the forecast will be updated in August. The impacts of weather on 2013 farm income depend on precipitation patterns over the next several months (spring to early fall for many field crops), and will also depend on the response of producers and markets to weather conditions and yields.
Highlights
- The 2012 drought rapidly increased in severity from June to July and persisted into August. As of September 12, over 2,000 U.S. counties had been designated as disaster areas by USDA in 2012, mainly due to drought.
- As of August 14, 60 percent of farms were located in areas experiencing drought. By mid-August, the impacts of the drought would have been fully realized for the majority of field crops.
- Based on the 2011 value of production, at least 70 percent of both crop production and livestock production was in areas experiencing at least moderate drought as of August 14.
- Severe or greater drought in 2012 impacted 67 percent of cattle production, and about 70-75 percent of corn and soybean production.
- More than 80 percent of the acres of major field crops planted in the United States are covered by Federal crop insurance, which can help to mitigate yield or revenue losses for covered farms.
Details
- As of mid-August 2012, 60 percent of farms in the United States were experiencing drought. About 17 percent of farms were in counties where most of the land is under moderate drought; 15 percent of farms were experiencing severe drought; and 28 percent were experiencing extreme or exceptional drought.
- A striking aspect of the 2012 drought is how the drought rapidly increased in severity in early July, during a critical time of crop development for corn and other commodities. The table shows the progression from mid-June to mid-August of severe or greater drought within the agricultural sector. While there has been some easing of drought conditions during early September, for most crop production exposure to drought during the June to August period will determine drought impacts. From mid-June to mid-August, the share of farms under severe or greater drought increased from 16 percent of all farms to 43 percent. Total cropland under severe or greater drought increased from 20 percent to 57 percent, while total value of crops exposed increased from 16 to 50 percent.
Farm Sector Exposure to Drought, Summer 2012
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Percentage experiencing severe or greater drought
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Percentage of:
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June 19
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July 17
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August 14
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Farms
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16
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40
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43
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Acres of Cropland
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20
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51
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57
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Value of Crops
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16
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43
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50
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|
Value of Cattle
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21
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56
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67
|
|
Values are percentage of national total.
Source: ERS calculations based on 2011 data from the Agricultural Resource Management Survey (ARMS) and county-level U.S. Drought Monitor data reflecting drought status as of August 14, 2012.
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- Exposure to drought in 2012 varied by commodity. Figure 1 shows the distribution of drought severity for major crops, in value terms.
- 21-22 percent of the value of corn and soybean production was in areas with severe drought in 2012, while 49-53 percent of the value of production was in areas currently experiencing extreme drought or worse.
Figure 1: Share of National Value of Crop Production by 2012 Drought Severity
Source: 2011 ARMS; U.S. Drought Monitor (August 14, 2012 drought status). Drought status is designated by the highest level of drought affecting at least 1/3 of a county.
- Figure 2 shows the distribution of drought severity in 2012 by livestock type, in value terms.
- 31 percent of all livestock produced (by value) was in areas with minimal drought, 18 percent in areas with moderate drought, and about half is in areas with severe or worse drought.
- Poultry farms were the least likely to be in areas affected by drought, while 78 percent of cattle production (value) was in areas with moderate or greater drought. However, livestock operations throughout the country were indirectly impacted by the drought through increased feed costs.
- 12 percent of cattle were produced in areas with moderate drought, and 67 percent are produced in areas with at least severe drought.
Figure 2: Share of National Value of Livestock Production by 2012 Drought Severity
Source: 2011 ARMS; U.S. Drought Monitor (August 14, 2012 drought status). Drought status is designated by the highest level of drought affecting at least 1/3 of a county.
Crop Sectors
With the 2012 harvest of most field crops nearly complete, the severity of the drought and its effect on crop production is becoming better understood. Production estimates for coarse grains and oilseeds were raised slightly from the previous month in the November World Agricultural Supply and Demand Estimates (WASDE) report, but yields and production of many field crops, particularly corn and soybeans, remain far below levels that would have been expected under more normal growing conditions. What had started out as a promising year for U.S. crop production, with favorable planting conditions supporting high planted acreage and expectations of record or near-record production, is seeing some of the driest and most unfavorable growing conditions in decades.
Crop production estimates for several major crops declined throughout the summer as the drought intensified, and by November, USDA's National Agricultural Statistics Service (NASS) production estimates for corn were down 27.5 percent from those reported in May, while production estimates for soybeans fell 7 percent over the same period. These declines reflect sizeable reductions in crop yields per harvested acre as well as smaller-than-normal harvested shares of planted cropland. Sorghum production estimates also declined significantly - 24 percent - between May and November, but 2012 production levels are now expected to exceed 2011 levels by nearly 20 percent, reflecting higher total acreage and lower abandonment despite yields projected 6 percent below last year. Production estimates released with the November 9 WASDE report show modest changes for feed grains compared with the previous month, with corn production up 19 million bushels and sorghum up 4 million bushels from the October 11 estimates.
The 2012 production declines from expectations early in the growing season reflect crop condition ratings that declined throughout much of the growing season. In the first weekly rating of the corn crop reported by NASS on May 20, over 75 percent was rated as good to excellent, while only 3 percent was in the poor or very poor category. By September 30, only 25 percent of the crop was rated good to excellent with 50 percent rated poor or very poor. Sharp declines in soybean crop ratings also occurred, with only 35 percent of the crop rated good to excellent as of October 7, compared with 65 percent in this year's first weekly soybean rating on June 3.
Production of corn and soybeans, as well as other crops, is particularly critical for supply, demand, and price conditions during the 2012/13 marketing year because of relatively tight U.S. and global stocks positions at the end of the 2011/12 marketing year. Instead of building during the new marketing year, stocks of corn and soybeans will remain low, with reductions in all major use categories required to balance demand with supply.
Due to the tighter-then-expected supplies, prices for many of the crops affected by the drought reached record or near-record levels over the past several months, and remain at historically high levels. Marketing-year average prices for 2012/13 (September 2012 through August 2013) were forecast in the November 9 WASDE report to fall within a range of $6.95-$8.25 per bushel for corn, with soybeans forecast at $13.90-$15.90 per bushel. Marketing-year average prices in these ranges would be record highs in nominal terms.
Corn
- After sharp reductions in 2012 corn yield and production forecasts in July and August, only small additional reductions were made in the September, October, and November USDA assessments. The November WASDE reported a modest (0.3 bushel/acre) increase in expected 2012 corn yields, resulting in a forecast production nearly identical to the one reported in September. Initial expectations at planting time suggested yields averaging a record 166 bushels per acre, but deteriorating growing conditions throughout the summer led USDA to reduce yield expectations by 20 bushels per acre in July, by an additional 22.6 bushels per acre on August 10, by another 0.6 bushels per acre on September 12, and another 0.8 bushels on October 11 before the 0.3 bushel increase reported in November. Yields are now forecast at 122.3 bushels per acre, the lowest since 1995.
- The corn harvest is now nearly complete, with 95 percent of the crop harvested as of November 4, compared with an average of 71 percent harvested by this date over the previous 5 years. U.S. 2012 corn production is now estimated at 10.7 billion bushels, down sharply from early-season projections of 14.8 billion, but only slightly below early August projections of 10.8 billion.
- For the 2012/13 marketing year, total corn supplies were forecast in the November 9 WASDE report at 11.8 billion bushels. This level of supply is about 13 percent below 2011/12 marketing-year supplies. Season-average corn prices for the 2012/13 marketing year are forecast to fall within a range of $6.95-$8.25 per bushel, up from the average of $6.22 for 2011/12. Marketing-year corn prices in this range would be record high in nominal terms.
- Ending stocks for 2012/13 were projected in the November 9 WASDE report at 647 million bushels, the lowest since 1995/96, when ending stocks were 426 million bushels.
See ERS Feed Outlook and data on production, use, yield, and prices.
Soybeans
- A significant amount of soybean acreage is also in the drought-affected region. After a large reduction in estimated 2012 soybean yields in August and a small additional reduction in the September USDA assessment, estimates for October and November were raised as late-season rainfall improved yield prospects in many States. The latest yield forecast now stands at 39.3 bushels per acre, 10.2 percent above September's forecast and up 4 percent from October, but well below initial forecasts of 43.9 bushels per acre. Soybean yields at this level would be the lowest since 2003.
- Soybean supplies were extremely tight entering the 2012 harvest, pushing soybean prices to record highs during parts of the summer and early fall. As the outlook for supplies improved due to late-season rainfall in some regions, prices trended lower in recent weeks. Season-average prices for 2012 are now forecast at $13.90-$15.90 per bushel, still high by historic standards but well below the September forecast of $15-$17 when much lower supplies were expected. Even with improved yields, ending stocks from the 2012 harvest are still forecast to be tight at 140 million bushels, equal to 4.6 percent of use and the lowest level of carryover stocks since 2003/04.
- Prices for soybean products have recently been trending lower along with the price of soybeans, but are still projected to be high relative to historic levels. For 2012/13, soybean oil prices are expected to average 51-55 cents per pound, compared with 52 cents per pound estimated for the 2011/12 marketing year, while soybean meal prices are projected at $455-$485 per short ton, up from an estimated $394 per ton for the 2011/12 marketing year.
See ERS Oil Crops Outlook and data on production, use, yield, and prices.
Wheat
- Few changes were made in 2012 U.S. wheat production estimates in the August, September, October, or November WASDE reports. Wheat is widely produced across much of the drought-affected area of the Midwest, but most of the wheat in this region is harvested in the spring and early summer, so it reached maturity before the dry conditions materialized.
- Fall harvested wheat (spring wheat) is produced mainly in Upper Midwest and Northern Plains areas that have been relatively less affected by the drought. Consequently, 2012 wheat yields estimated at 46.3 bushels per acre are 2.6 bushels per acre above estimates for the 2011 crop, and wheat production this year could exceed last year's harvest by 270 million bushels, or more than 13 percent.
- U.S. wheat feed and residual use in 2012/13 is projected up from the 2011/12 marketing year, due to larger 2012 U.S. wheat production and the tighter market conditions for corn. U.S. wheat exports are also projected slightly higher than in 2011/12, in response to reduced foreign wheat production. However, combined with the larger production this year, U.S. wheat stocks at the end of the 2012/13 marketing year are expected to be only about 5 percent lower than 2011/12 ending stock levels.
- Wheat prices are projected at $7.75-$8.45 per bushel in 2012/13, up from $7.24 in 2011/12.
See ERS Wheat Outlook and data on production, use, yields, and prices.
Cotton
- While conditions have been dry in many cotton producing regions of the United States, they are much improved from the drought conditions experienced in 2011. Yields for the 2012 crop are now estimated (in the November WASDE report) at 802 pounds per acre, up from 790 for the 2011 crop. And, despite 2.38 million fewer acres planted to cotton this year, harvested acreage is expected to exceed 2011 levels by nearly 1 million, reflecting sharply lower abandonment this year. The result is that U.S. cotton production in 2012 is now expected to exceed 2011 levels by about 1.9 million bales, or about 12 percent.
- Despite the larger 2012 production estimate, U.S. cotton exports are forecast slightly down for 2012/13, because of lower import demand from China. Consequently, U.S. ending stocks of cotton are projected to build in 2012/13 and prices are projected to decline. Compared with a marketing-year average price of 88.3 cents per pound in 2011/12, upland cotton prices are projected in a range of 64-72 cents per pound in 2012/13.
See ERS Cotton Outlook and data.
Future Revisions to Field Crop Production Estimates
- Monthly revisions to this year's production estimates for major U.S. crops will continue as NASS conducts subsequent surveys of production prospects. Final NASS estimates of the 2012 production of crops will be available in January 2013.
Livestock Sectors
The outlook for U.S. livestock sectors remains mostly unchanged from October USDA forecasts. Drought-induced prospects for significantly higher feed prices and heat stress on crops, pastures, livestock, and poultry are likely to restrain growth of U.S. cattle and hog breeding herds as well as poultry and milk production. Following on the heels of last year's drought in the Southern United States, this year's lack of adequate rainfall over more than half of the country has resulted in reduced corn and soybean crops, higher prices for corn, soybean meal, and other feed, and reduced availability of hay and pasture.
As of October 28, 54 percent of pastures and ranges in the United States were rated poor to very poor, compared with 58 percent on September 9, just 40 percent at the same time in 2011, and 31 percent on average from 2000 to 2010. Lack of pasture is inducing growers to place cattle on feed at lower weights; this coupled with higher grain prices is further reducing prices of feeder cattle in the near term. The impact of placing cattle on feed sooner is likely to result in greater production declines in 2013 than in 2012, potentially leading to higher prices in 2013 and beyond. Beef production in 2012 is projected to decline 2.3 percent from 2011 levels, and decline another 4.2 percent in 2013. Broiler and pork production are also expected to experience declines in 2013, while milk production is expected to remain stable.
- Feedlot operators are paying lower prices for cattle as higher feed costs and reduced availability of pasture lead to increased supply of feeder cattle. Feeder cattle prices are expected to remain in the mid to upper $140 range for the remainder of this year and into 2013.
- Imports of feeder cattle from Mexico, which had been above a year ago for most of the year, began to decline in July and August and continued to drop in September.
- Heat stress, higher feed prices, and the potential for reduced hog and poultry inventories continue to dampen the outlook for pork and poultry production into 2013.
- Broiler production estimates for 2012 and 2013 have been reduced to 36,889 and 36,445 million pounds, respectively, down from 37,201 million pounds in 2011, due to higher feed costs.
- Hog farrowings (litters of pigs) are expected to decline in the second-half of 2012 and the first three quarters of 2013 because of high anticipated feed prices. Pork production for 2013 is expected to be slightly more than one percent below 2012 at 22,940 million pounds.
- Milk production in 2012 is projected to be 1.7 percent higher than 2011, but high feed costs are expected to result in essentially no change in milk production in 2013. While milk prices are projected to remain lower than 2011 levels in both 2012 and 2013, anticipated prices for 2013 were raised somewhat in the November World Agricultural Supply and Demand Estimates (WASDE) report. Milk prices received by farmers averaged $20.14 per hundredweight (100 pounds) in 2011, and are projected at $18.50-$18.60 per hundredweight in 2012 and at $19.10-$20.00 per hundredweight in 2013.
See ERS Livestock, Dairy and Poultry Outlook and Livestock & Meat Domestic Data.
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