Drought effects on Crop Yields

You've probably noticed an increase in the price of most things in your life. It could get worse over the next few months, but not because of what you may think.

This summer was extremely dry... not just in the US or Europe, but globally. Droughts have crushed crop yields, and could have an adverse effect on pricing. Throughout the summer corn prices began ticking up, and are expected to do so throughout the year.

While this sounds bad, the agricultural industry does one thing better than any other. Farms are globally redundant, the same cash crops are grown everywhere. This gives the system more leeway than would otherwise be the case.

The summer drought’s hefty toll on American crops

This summer's drought slashed crop yields across the US. Texas cotton farmers have abandoned up to 70% of their crop because of undersized bulbs or dying plants.

For almost two years the United States has endured a drought, with many of the agricultural regions affected. For example California's central Valley saw over $1.7 Billion of economic loss in 2021. The region requires about 20% of the United States ground water. So it's vulnerable to drought conditions.

The chart above shows how widespread the drought is. To most this summer was hot, to farmers it has been a catastrophe.

Texas Cotton Industry is facing worst drought in years - will cost the state over $2 billion

This summers drought destroyed much of Texas' 4-5 billion dollar Cotton industry. Losses have are estimated to be around $2 billion. As we can see from the previous chart, the heat smashed Texas this summer. 95% of the state has endured severe drought conditions. This will have

Farmers and insurance companies will have to deal with second order effects. Insurers must deal with the realities of climate change affecting their models. As weather patterns change, . Insurance is a zero sum game as soon as crop loss occurs. If farmers win a claim insurance loses, and vice versa.

Most farmers aren't 100% covered. If they are, high premiums force farmers to sacrifice margins. If extreme weather continues to occur, farmer insurance could change.

Drought across Northern Hemisphere

This is a scary sentence; “The rough conditions have shriveled crops in the western corn belt. Some scouts were holding out hope that perhaps better acres in the eastern half could salvage the national harvest. Now, that optimism is fading. Instead, there’s growing concern over a corn shortage.”

Supplies are tight across the board. 47% of Europe is under drought warning. Southern China endured a massive heat wave, which has caused the government to deploy almost $3 billion to battle drought conditions.

What does this mean? Corn prices are going to rise because of this summer's drought, and decreases in yields throughout the northern hemisphere. Because Ukraine's crop can now leave the ports, there is some buffer built into the system.