One year after U.S. commodity costs hit new highs as North America suffered one of the worst droughts since the Dust Bowl of the 1930s, crop prices now are falling because of improved weather conditions.

Pricing in the third quarter for U.S. corn, soybeans and wheat is expected to drop by 9 to 10 percent compared to the second quarter, according to the IHS Supply Chain Pricing & Purchasing group at IHS Inc., a leading global source of critical information and insight. This plunge will bring pricing back to similar levels seen in the second quarter of 2012, before the drought impacted yields. U.S. corn and soybean pricing is expected to decline at even sharper rates in the fourth quarter, falling by 27 and 24 percent, respectively, while wheat will see a slight  5 percent increase.

Crop prices retreat from 2012 highs as drought impact dissipatesThis figure presents the results of the IHS Global Insight Soft Commodity Price Index (GISCPI), a weekly soft commodities price index that analyzes worldwide pricing trends for core agricultural commodities. Commodities tracked by GISCPI include feed grains, food grains, meals and oils, cotton, sugar, dairy, and meats and products.

The GISCPI reflected the price declines for U.S. corn, soybeans and wheat, and has retreated from its drought-inflated 2012 levels. On July 26, 2013, the GISCPI stood at 2.30, down from the recent high of 2.87 almost exactly one year earlier on Aug. 21, 2012.

“The drought decimated the U.S. great plains and the corn belt during the summer of 2012,” said Ryland Maltsbarger, principal agriculture economist for the IHS Supply Chain Pricing and Purchasing service. “The planting season in spring 2013 started out much worse than in 2012 with a majority of the crop going in late. However, while the drought is still lingering in certain areas of the United States, we are in a better position than we were one year ago.”

Feed the world

While U.S. corn and soybean yields are expected to come in at below the trend line average in 2013, they will be much higher than they were in the previous year.

In Russia and Ukraine, the breadbasket of Europe, the weather this year was conducive to an early start to the harvest, although dry warm weather in late spring had cut production outlooks slightly. Because of the early harvest, cheap wheat supplies are beginning to flood the market.

Meanwhile, the second corn crop from Brazil avoided any kind of event that would cut down yields.

Wheat check

The magnitude of weekly wheat imports from China this year has shocked the trade. As a result, the U.S. Dept. of Agriculture has increased 2013/2014 Chinese wheat imports to 8.5 million metric tons, which is very large for China on a change basis.

Pressure crop

The bottom line for the global agricultural business is that commodity prices are being pressured by the growing reality that global grain balance sheets may actually loosen, Maltsbarger said.

Following major declines for corn and soybeans in the fourth quarter, pricing for all U.S. agricultural commodities is expected to stabilize and see some level of support after the beginning of 2014.