USDA cuts corn outlook as drought grips

The US government has slashed its expectations for corn and soybean production for the second consecutive month, predicting what could be the lowest average corn yield in more than 15 years as the worst drought in decades grips major farm states.

Nonetheless, Agriculture Secretary Tom Vilsack on Friday insisted US farmers and ranchers remained resilient and the country would continue to meet demand as the global leader in farm exports and food aid.

The US Agriculture Department cut its projected US corn production to 10.8 billion bushels, down 17 per cent from its forecast last month of nearly 13 billion bushels and 13 per cent less than last year. That also would be the lowest production since 2006.

The USDA, in its World Agricultural Supply and Demand Estimates report, now expects corn growers to average 123.4 bushels per acre, down 24 bushels from last year in what would be the lowest average yield in 17 years.

Soybean production is now forecast at 2.69 billion bushels, a 12 per cent decline from last year and well off the 3.05 billion bushels the USDA had expected last month. The expected average yield of 36.1 bushels per acre would be the lowest since 2003.

Corn farmers had expected a record year just months ago, when they sowed 96.4 million acres - the most since 1937. The USDA now predicts only 87.4 million acres will be harvested, although it notes the crop still could be the eighth-biggest in US history.

On Thursday, the UN food agency drew a direct correlation between price hikes in basic food commodities and the months of parched conditions in farm states.

The Rome-based Food and Agriculture Organisation said in its monthly price report that its overall food price index climbed 6 percentage points in July, although it was well below the peak reached in February 2011.

The FAO's index, considered a global benchmark used to track market volatility and price trends, measures the monthly price changes for a basket of food, including cereals, oils and fats, meat, dairy products and sugar.

Severe drought punishing the US's midsection has sent corn prices soaring, and expectations of crop damage from dry weather in Russia sent world wheat prices up 19 per cent, according to the FAO. Spikes in the prices of staple foods have led to riots in some countries in recent years.

Vilsack tried to tamp down such concerns on Friday.

"Americans shouldn't see immediate increases in food prices due to the drought," Vilsack said as he visited drought-stricken Nebraska. "What is important going forward is that we continue to do all we can to help the farmers, ranchers, small businesses and communities being impacted by this drought."

Rick Whitacre, a professor of agricultural economics at Illinois State University, said consumers may see modest price increases at grocery stores because corn is found in everything from cosmetics to cereal, soda, cake mixes and candy bars. He said the biggest price jump is likely to be a 4 to 6 per cent increase for beef and pork, as many ranchers have sold livestock as pastures dry up and feed costs rise.

Federal scientists say this July was the hottest on record, smoking out even the sweltering temperatures set in the Dust Bowl in the 1930s. The National Oceanic and Atmospheric Administration reported on Wednesday that the stretch from August 2011 through July this year was the warmest 12-month period the US has experienced.

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