The Economist: Corn on the Cusp

August 4, 2012

Dark clouds gathered on the horizon foretell doom in the popular imagination. Yet it is the prolonged absence of them in America’s Midwest that threatens global grain and soyabean markets. A lack of rain has brought the worst drought in over 50 years to a region that usually provides over half the corn (maize) and more than two-fifths of the soya to world markets. A downpour in the next few days will not save the corn—it has been too hot and dry for too long—but it might limit damage to the soya crop and the market as a whole.

After two lean seasons, expectations for a bumper corn crop were high, according to Kona Haque of Macquarie, a bank. The bad years meant high prices. Planting began early and hit a record as corn won the battle for acres with soya and cotton. The weather began well. In May three-quarters of the corn was judged in good or excellent condition by America’s Department of Agriculture. Parched earth means that just a quarter of the crop now gets that rating, one of the lowest ever.

Corn prices have climbed (see chart) and hopes that low stocks might be replenished have been dashed. America’s crop goes in roughly equal measure to producing ethanol, feeding livestock and for export. All three will feel the pinch.