NEWS,27.07.2012

US drought woes deepen

The drought in America's breadbasket is intensifying at an unprecedented rate, experts warned on Thursday, driving concern food prices could soar if crops in the world's key producer are decimated.The US Drought Monitor reported a nearly threefold increase in areas of extreme drought over the past week in the nine Midwestern states where three quarters of the country's corn and soybean crops are produced."That expansion of D3 or extreme conditions intensified quite rapidly and we went from 11.9% to 28.9% in just one week," Brian Fuchs, a climatologist and Drought Monitor author, said."For myself, studying drought, that's rapid. We've seen a lot of things developing with this drought that were unprecedented, especially the speed."Almost two thirds of the continental United States are now suffering drought conditions, the largest area recorded since the Drought Monitor project started in 1999."If you are following the grain prices here in the US, they are reflecting the anticipated shortages with a price increase," Fuchs said."In turn, you're going to see those price increases trickle into the other areas that use those grain crops: cattle feed, ethanol production and then food stuffs."In some rural areas, municipal water suppliers are talking about mandatory restrictions because they have seen such a dramatic drop in the water table that they fear being unable to fulfill deliveries to customers, Fuchs said."Things have really developed over the last two months and conditions have worsened just that quick and that is really unprecedented," he added."Definitely exports are going to suffer because there is going to be less available and the markets are already reflecting that."It's anticipated that this drought is going to persist through the next couple of months at least and conditions are not overly favorable to see any widespread improvement. "President Barack Obama's administration has opened up protected US land to help farmers and ranchers hit by the drought and encouraged crop insurance companies to forgo charging interest for a month.Officials have said the drought will drive up food prices since 78% of US corn and 11% of soybean crops have been hit and the United States is the world's biggest producer of those crops.The current drought has been compared to a 1988 crisis that cut production by 20% and cost the economy tens of billions of dollars.The US Department of Agriculture issued retail price forecasts Wednesday for 2013 and they already showed an impact from the drought, with consumers expected to pay between three and four percent more for their groceries."The 2013 numbers reflect higher-than-average inflation which is partly a function of the drought and the higher crop prices," said Ephraim Leibtag of the USDA's Economic Research Service."The drought effects are starting now at the farm and agricultural level."Those things take two to 12 months to work through the system. So you'll see some effects as early as the fall (autumn) in terms of the grocery stores and restaurants, certainly later in the year and into 2013."The full impact of the drought on food prices won't be known for months."It's too early to tell as we don't know how much of the crop is going to be lost and how much higher corn and soybean prices will go," Leibtag said."We are not forecasting major impacts on retail food at this point. If the drought gets worse or corn and soybean prices rise even more, that would start to have a bigger impact."Even before the last week, farmers were telling AFP they may have to cut their losses  chopping down fields of half-mature, earless corn to feed the stalks to cattle.Weather forecasters predicted no respite.

ECB chief vows total support for euro

 

European Central Bank chief Mario Draghi vowed unconditional support for the beleaguered euro on Thursday, sending markets soaring orbit as traders eyed further action from the bank to shore up the eurozone.In apparently unscripted comments in London, the normally reserved Draghi said his institution was "ready to do whatever it takes to preserve the euro. And believe me it will be enough".Stressing that the euro was "irreversible", Draghi said that part of his bank's remit was to keep sovereign debt levels under control when they hampered the proper functioning of interest rate policy.Analysts saw Draghi's comment as a hint the ECB could soon reintroduce its hotly contested programme of buying up the bonds of struggling eurozone countries that has lain dormant for several months.As Spanish borrowing costs soared over seven percent earlier this week  the level that forced Ireland, Portugal and Greece into bailouts  the bank has come under increasing pressure to restart the programme.And Draghi's hints had an immediate impact on borrowing costs, with Spain's shooting below the seven-percent mark and Italian costs plummeting to just above six percent.The comments also sent stock markets into euphoric mood and boosted the euro on the foreign exchange markets after several days of painful declines amid fresh speculation the eurozone might implode or Spain might need a bailout.ABN Amro economist Nick Kounis said that Draghi had "opened the door for a restart of the central bank's government bond purchase programme", untapped since February."The crisis response looks likely to focus on direct intervention in the government bond market," he added.And CMC Markets analyst Michael Hewson said that Draghi's remarks "suggest that the ECB may well do something about capping rising bond yields".Attention would now turn to Draghi's monthly news conference in Frankfurt on August 2 "to see if he means what he says", the analyst added.Since the eurozone sovereign debt crisis erupted more than two and a half years ago, the ECB has won praise as the only European institution that has acted quickly and decisively to stem the turmoil.It has cut interest rates to a record low level of 0.75% and flooded banks with more than €1 trillion of ultra-cheap loans in a bid to stimulate lending and get the economy moving again.ECB officials have never ceased to repeat that such measures are only temporary and merely meant to buy time for governments to tackle the root causes of the crisis - profligate spending.Draghi insisted again in his London speech that the ECB did not want to "supplement actions that have to be taken by governments"."That is not our job," he insisted.But the central bank chief did praise efforts taken by EU leaders to fight the flames saying that "progress has been extraordinary in the last six months".Meanwhile, European Commission President Jose Manuel Barroso, on his first visit to Athens since the crisis began, urged Greece to deliver on its obligations if it wishes to remain in the eurozone."To maintain the trust of its European and international partners, the delays must end. Words are not enough, actions are more important," Barroso said after talks with Prime Minister Antonis Samaras and Finance Minister Yannis Stournaras."All heads of states and governments of the euro area have stated in the clearest possible terms that Greece will stay in the euro as long as commitments made are honoured," Barroso told his hosts.Samaras, who leads a three-party coalition government that campaigned on keeping Greece in the eurozone, said he was "determined to go ahead with structural changes and privatisations and implement the measures agreed on in order to reduce the deficit".But the key measure demanded by EU-IMF lenders, whose auditors are again in Athens inspecting government books, now includes €11.6bn in new spending cuts, which is certain to face stiff resistance by Greeks.The IMF said on Thursday that it expected discussions with Greek authorities over the country's bailout-supported programme to continue into September, longer than expected.