At least 39 percent of cropland in the Midwest was under a severe drought during the summer of 2012, says Time magazine in the August 6, 2012 story of When the Rains Stop. And according to the USDA, only 26 percent of the corn crop is currently rated good or excellent – with 45 percent being rated as very poor. And because Farmers originally expected a record harvest this year –they had planted more corn this year than since 1937. As a result, the serious crop losses have caused corn prices to raise from last years 7 dollars a bushel to this years 8.24 a bushel.
However, because 85 percent of all planted acres in the United States are under some form of crop disaster insurance, taxpayers can expect to be placed with even more tax burden. Bruce Babcock, an agricultural economist at Iowa State University believes that because the Federal Government subsidizes much of private insurance, taxpayers will end up under the squeeze because “Crop-insurance companies are not going to be able to take on these losses.”
But the problem is only starting to take shape with concerns in Ethanol prices, and other nations who depend on food from America’s breadbasket. And because many livestock farmers depend on grain to feed their animals, the high cost of feed is gouging them too. As a result, “The cost of everything from hamburgers to cereals to Gatorade could go higher,” Time notes. “Drought will eventually deliver an unwelcome jolt to the struggling economy as it kicks inflation up a notch.”
The restaurant industry may also face hardships, where higher priced food may cause people to not eat out as much. Still, most Americans are fairly well insulated from increases in crop prices. Mostly because out of every dollar spent on food, only 15 percent actually goes to food. The rest is spent on packaging and advertising.
Please see the US Drought Monitor for more details.