It’s been interminably dry for US farmers. Over the 2022 summer Great Plain states such as Oklahoma, Nebraska, and Kansas suffered some of the most intense heat in recent memory. This greatly compromised corn crops when they required water most post-pollination. Moreover, a significant percentage of corn crops were planted late after a very wet spring, adding to overall yield loss.
Disappointing US harvest figures coupled with the war in Ukraine is straining the global food supply situation. Recently senior executives from Bunge, Archer Daniels Midland, Bayer, and Corteva released a collective warning that the worldwide crop supply will be tight for some time. Roughly two years of bumper crops in North and South America would be needed to ameliorate the situation.
On September 12th the US Agriculture Department modulated its corn-production estimate by 3% from August (13.9 billion bushels). This figure sits nearly 8% below the 2021 total. In Nebraska, the Professional Farmers of America Inc., an agriculture advisory firm, slashed its corn yield outlook by 13%. North Dakota fared even worse with a 22% cut compared to 2021. The Chicago Board of Trade took notice reporting futures prices for corn soaring to 28% with wheat and soybeans following at 17% and 14% respectively.
When supply tightens, food or otherwise, poorer countries and consumers are hit the hardest. The USDA estimates that the number of food-insecure people is up 10% from last year. This puts the overall figure just north of 1 billion people. The invasion of Ukraine has only exacerbated the situation but crop prices have abated some thanks to a grain export Russia/Ukraine agreement in July. This has enabled one million-plus tons of grain to be freed from Ukrainian silos and exported through the Black Sea. Earlier this year it was estimated Ukraine was exporting only 40% of the grain it would typically ship, but thanks to the summer deal that number has risen to 60%. Barring any reversals, by the end of the year, Ukraine could be exporting up to 85% of what it normally would.
Much of this is dependent on Mr. Putin. Just weeks ago the Kremlin signaled they have been unhappy with the terms of the deal accusing the West of taking advantage of the exports as opposed to more wheat flowing to developing world markets. The threat alone boosted wheat prices after a period of decline. The deal will expire in late November. Global food security hinges on its extension as well as the freeing up of the storage necessary for the next cycle’s crop.
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