With one of the worst droughts in US history finally abating, the grim realization that the rain will come too late for US crops is setting in. The UD Department of Agriculture lowered its forecast for US corn and soybean production by 17 percent from a month ago to 13 billion bushels. It was the second month in a row the USDA lowered its forecast, the new expected total would be 13 percent below last year's haul. Corn prices rose to a record high on the dour outlook from the agency, but then retreated after it said demand would likely fall because of soaring costs.
Just two months ago, American farmers were expecting the biggest nationwide harvest ever, based on the biggest plantings in 75 years, but a drought that has ravaged the Corn Belt over the last two months has all but obliterated the crops, and farmers are expecting about 25 percent less yield than normal, on average. With the expected spike in prices, analysts fear that some countries may make panic purchases of grains, crippling the supply and making prices soar even higher. This type of rash move was common in 2008, the last time grain prices surged dramatically.
With grain prices peaking, debate will likely intensify about the US policy requiring the use of more than 13 billion gallons of biofuels, mainly ethanol, which is made of corn. Dozens of officials and agricultural lobbyists have requested relief from the policy, but it has significant support among legislators from farming states as it helps maintain prices when crops are plentiful. With the election looming, legislators from those states are unlikely to concede on the issue.