The U.S. drought – what does it mean for us?

If you have been watching the news lately, you know that the United States mid-West is in the worst drought in 50 years. With corn and soybean crop estimates declining in output, as well as declining quality expectation every day; commodity prices are already trading at record highs.

• Traditional prices of defatted soybean meal have been below $300 per ton. On July 21 the market closed at $546 per ton. Farmers reported deteriorating conditions for soybeans as well. The report for week of July 9 said 30% of the crop was in good condition and 4% excellent. In the most recent week, 27% is listed as good and 4% as excellent.
• Normal year corn pricing is between $2.50 and $4.00 per bushel, on July 21 it closed at $8.08 per bushel. Reports for week of July 9 said 27% of the crop was listed in good shape and 4% excellent. The most recent report list 23% good and 3% excellent.
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Fears are on the rise of a global food price increases as we saw in 2008. This was mainly due to rice and wheat production shortages in regions other than the US. Since the US is one of 4 major corn and soybean growing regions in the world, we influence global supply and pricing. Click here for more information.

Numerous reports expect the consumer prices to go up in 2013 by around 10%. Most ingredient suppliers expect prices to go up with the drought situation continuing to worsen. To what degree is unknown as raw material costs are just one reflection of ingredient processing costs with lower protein problems likely to persist.

On the dairy and livestock side, milk production is expected to go down as farmers find that they cannot afford to feed as many animals. Recent short term reports showed a 10% drop in milk supply. If milk supply drops, less cheese and correspondingly less whey protein will be processed, leading to continuation or worsening of the present short supply situation on whey protein and higher prices. Meat and animal protein products should see a lag in price increases as herd size reduction will be slower to implement.

With so much media focus on the drought, we recommend following a newswire to stay up to date on the most recent information. We like Soyatech, a firm that helps develop, support and promote better utilization of our planet’s agricultural resources.

SPI Group works hard to maintain economies of scale for the benefit of our customers. We can help you manage the swings in the fluctuating market with tools for managing pricing, extending meat, blending proteins and seeking innovative methods for meeting consumer demands. Contact us to learn more about how to manage your ingredient costing needs.