The effects of the drought in the U.S. have been mentioned in many local newspapers. It is obvious that communities based largely in agriculture are watching. Nebraska newspapers speak of devastated corn fields, The Arkansas Gazette has articles about families selling off cattle herds, but the drought doesn’t seem to be getting much attention in the business news.
In a July 5th New York Times article, Monica Davey described what farmers are going through, but fell short of showing the affect this drought will have on the U.S. economy. Davey quotes experts as saying “…parts of five corn-growing states, including Indiana, Kentucky and Ohio, are experiencing severe or extreme drought conditions.” That is true, but a graphic showing areas affected by the 2012 drought would have told a more complete story. Much of the U.S. is gripped in a drought at this time, and the effects to the economy are going to be dramatic.
The immediate impact will fall on farm families and insurance companies. Crop and livestock losses are abrupt and conspicuous, the revitalization of the crop ground and rebuilding of livestock herds is not. This drought is compared by some to the one we endured in 1988. Over $5 billion in drought assistance was issued to farmers in the 1988-89 growing season. This number is in 1988 dollars and does not take into account costs suffered by consumers. Our use of corn for plastics, sweeteners, and ethanol, occurred after this era. Let's just focus on corn for now.
With the passing of the Clean Air Act in 1990, ethanol production ramped into high gear. According to the Department of Energy, consumption of ethanol grew from 2,000 million gallons in 1998, to 13,000 million gallons in 2011. The U.S. Department of Agriculture estimated the annual amount of caloric sweeteners consumed per capita in 2009 at 93 pounds, of that, 66 pounds was High Fructose Corn Syrup. Plastics made from corn include water bottles, shopping bags, and those clear “clamshell” containers used in the food industry. Can we get by with 20% less corn, or maybe 40%?
I enjoyed Davey’s article and believe it does a good job of introducing the problem to the reader. Watch for much more in-depth probes in the financial pages as prices for common goods skyrocket.