Worst-in-generation drought dims US farm economy hopes

Joshua Zumbrun and Mark Drajem in Boomberg News: ...A worst-in-a-generation drought from Indiana to Arkansas to California is damaging crops, rural economies, and threatening to drive food prices to record levels. Agriculture, though a small part of the $15.5 trillion U.S. economy, had been one of the most resilient industries in the past three years as the country struggled to recover from the recession.

“It might be a $50 billion event for the economy as it blends into everything over the next four quarters,” said Michael Swanson, agricultural economist at Wells Fargo & Co. (WFC) in Minneapolis, the largest commercial agriculture lender. “Instead of retreating from record highs, food prices will advance.”

The U.S. Department of Agriculture declared July 11 that more than 1,000 counties in 26 states are natural-disaster areas, the biggest such declaration ever. The designation makes farmers and ranchers in affected counties -- about a third of those in the entire country -- eligible for low-interest loans to help manage the drought, wildfires or other disasters.

“The drought will have regional, national and even international impacts,” Ernie Goss, a professor of economics at Creighton University in Omaha, Nebraska, said in an e-mail. Farm income, which has underpinned the growth of many rural states, will be under “significant downward pressure,” Goss said.

The USDA has said the drought is the worst since 1988 and cut its forecast for the corn harvest for the year by 12 percent. Those estimates could worsen if rain does not come, said Brandon Kliethermes, a senior economist with IHS Global Insight’s agriculture group in Columbia, Missouri. “We’re not to that point yet but we’re trending that way,” he said....

The corn belt in the US, by Elikos91, Wikimedia Commons, under the Creative Commons Attribution-Share Alike 3.0 Unported license