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.
