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Saturday, August 11, 2012 - Page updated at 10:00 p.m.
Crop forecast: reduced production, higher prices
By RON NIXON and ANNIE LOWREY
The New York Times
WASHINGTON — With the nation's worst drought in a half-century continuing to ruin crops, the government on Friday slashed its estimate of the soybean yield, made only a month ago, to the lowest level since 2003 and its estimate of the corn yield to the lowest level since 1995.
The smaller harvests will drive up prices for food and animal feed, analysts said. The prospects are also increasing pressure on the Obama administration to divert less corn to the production of the biofuel ethanol.
Agriculture Secretary Thomas Vilsack, visiting drought-stricken farmers in Nebraska on Friday, said that despite the reduced crop production, farmers are in better shape today than during the last major drought, in 1988.
"Last time only 25 percent of farmers had crop insurance, but this time over 85 percent are covered," Vilsack said, noting that the government was still forecasting the eighth-biggest corn harvest.
But analysts warned of falling yields and spiking wholesale prices down the road. "It's scary when you see the numbers out today," said Terry Roggensack, an analyst at the Hightower Report in Chicago.
"Unless there is normal weather and rain from here on out, I can easily see prices for corn and soybeans" rising 20 percent to 25 percent.
The Agriculture Department report released Friday forecast the corn yield to be 123.4 bushels an acre, the lowest in 17 years, down 15.5 percent from its July estimate.
It also forecast the yield for soybeans, used in everything from fry oil to livestock feed, to be 36.1 bushels an acre, down 10.7 percent, or 4.4 bushels an acre below July's estimate and 5.4 bushels an acre less than last year.
In July, as the country recorded the hottest month on record, the government also lowered its production forecast for eggs, milk and pork.
Beef production is expected to rise as ranchers cull more of their herds because of higher feed prices. But experts predict the price of beef will rise next year as supplies tighten but feed costs continue to increase.
Last month, the Agriculture Department estimated that food prices would climb 3 to 4 percent in 2013.
The Agriculture Department's report has also renewed debate over the use of corn for ethanol production.
The Renewable Fuel Standard, passed into law in 2005 and expanded in 2007, requires that 13.2 billion gallons of corn-based biofuel be produced in 2012. The goal of the standard is to reduce greenhouse-gas emissions and the nation's dependence on foreign oil.
About 40 percent of the nation's corn crop now goes to ethanol producers and the rest to animal feed, food and exports. Critics of the ethanol-fuel standard say the use of corn for ethanol is a major factor in the tripling in the price of corn since 2005.
Livestock producers, hard hit by the rise in feed prices, have called on the Obama administration to waive the requirement until the drought is over.
With half the nation's corn crop in poor condition, 156 House members and 25 senators have signed letters to Lisa Jackson, the administrator of the Environmental Protection Agency, calling on her to issue a waiver on the ethanol standard.
Severe weather has hurt agricultural production in other major exporting countries, including Brazil, Russia, Australia and India, raising concerns about global shortages of certain food commodities, shortages that will increase food prices and stoke inflation.
Copyright © The Seattle Times Company
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