The impact of the existing drought in the country is the worst since 1956, according to the U.S. Department of Agriculture (USDA).  The Midwest farm belt, which produces 75 percent of corn and soybeans in the United States, is harshly affected by the unfavorable weather.

USDA

Based on the assessment of the USDA, corn production will decline by 13 percent, to 10.8 billion bushels for 2012, compared with the corn harvest in 2011, the lowest since 2006.  The projected average harvest would 123.4 bushels per acre, a 23.8 percent decline from last year.

The USDA also reported the volume of surplus corn stocks, after the upcoming harvest, towards 2013 is approximately 650 million. The estimate is almost 50 percent lower compared with the 1.18 billion estimated volume of corn stock surplus last month. The forecast is the lowest since 1995.

The global corn ending stocks dropped from the projected 134.09 metric tons last month, to 123.33 million tons (1 ton=39 bushels).

Based on the assessment of the impact of the drought, the USDA warned that food prices will increase from the 2.5 percent – 3.0 percent, to 5 percent next year. According to Colin Carter, professor of agricultural economics at the University of California-Davis, people in developing countries will be experiencing an enormous impact on the price increase of corn, because the 30 percent to 40 percent of their income is spent on food. He expects hunger to rise.

Analysts project the price of corn will surge from $8 per bushel last month, t0 $8.90 per bushel. The projected price is higher than the $6.40 per bushel previously forecasted. During the planting season in April, the estimated price per bushel was $4.80.  Immediately after the USDA released its report, corn futures were sold at $8.43 per bushel at the Chicago Board of Trade.

On the other hand, the USDA reported the impact of drought in soybeans production is 12 percent less than in 2011, at 2.69 billion bushels.

In response to the adverse effect of the drought, the Obama Administration released an almost $30 million financial and technical assistance fund to crop and livestock producers in 19 states affected by drought.

In a statement, Agriculture Secretary Tom Vilsack said, “President Obama and I continue to work across the federal government to provide relief for those farmers and ranchers who are affected by the severe drought conditions impacting many states across our nation. This additional assistance builds on a number of steps USDA has taken over the past few weeks to provide resources and flexibility in our existing programs, to help producers endure these serious hardships. As this drought persists, the Obama Administration is committed to using existing authorities wherever possible to help the farmers, ranchers, small businesses, and communities being impacted.”

President Barack Obama also held a meeting with his White House Rural Council to review the response actions of the Executive Branch to the problem, and to develop additional policy initiatives to assist producers hit by the drought.

Yesterday, the United Nations reported the worldwide impact of the drought. The agency’s Food and Agricultural Organization said the global food prices increased by 6 percent. Companies in the United States, such as Tyson Foods, Inc. (NYSE:TSN), one of the leading meat processors, and Archer Daniels Midland Company (NYSE:ADM), already reported the negative impact of the dry weather in their business operations.