The end of 2012 was marked with numerous discussions about the United States’ pending Fiscal Cliff issues. But another cliff may be looming that hasn’t been as widely discussed: The Grain Cliff. Drought in the United States and around the world devastated grain crops in 2012. Although many worried the smaller grain harvest in 2012 would cause grain prices to increase dramatically, cereal prices have decreased approximately 2.4 percent as global demand has lessened due to stagnating economies.
The drought has continued as of mid-January 2013 and forecasts are not predicting much relief for much of the Midwest and Corn Belt areas. Little rain in October and November has damaged the winter wheat crop in Kansas and Oklahoma.
Abdolreza Abbassian, secretary of the Intergovernmental Group on Grains at the United Nations’ Food and Agriculture Organization, said he does not expect the U.S. drought to have a huge impact on global supplies of wheat yet, “but should we record another climatic shock in Russia, then we could be in trouble.” He said a clearer picture will emerge in February during the Northern Hemisphere spring, when details of how much grain each of the major producers will be selling becomes available, the IRRN News reported.
Others disagree with Abbassian and suggest that the world is already in a food price crisis. U.S. corn prices have risen dramatically, which has forced countries who import U.S. corn to find cheaper alternatives from other exporters. Data from USDA supports this.
According to the USDA's "Grain: World Markets and Trade" report, recent quarterly shipment data show U.S. corn exports dropping to the lowest level in at least two decades. South American shipments, Brazilian in particular, have tripled even in the face of new-crop U.S. supplies.
The United States’ ending stocks for corn and wheat are running dangerously low. For corn, the USDA’s latest projected ending stocks was reduced to a 20-day supply when a 30-day supply is considered minimum and soybeans are running at a 16-day supply.
With less supply and higher prices already in place, the UN and other organizations are worried that large scale crop failures in 2013 could tip the balance, create a Grain Cliff, that could lead to riots and government upsets in multiple countries, like 2008 and 2011. The world avoided the crises of 2008 and 2011 in 2012 because lower demand for grains helped push down global prices, which kept prices from spiraling out of control.