Corn Prices Set to Soar After Midwest Hit by Worst Drought in 30 Years

An unusually dry May in the Midwest has raised concerns over this year's corn crop in the Corn Belt, the region stretching from the panhandle of Texas up to North Dakota and east to Ohio which dominates the country's corn production.

On May 25, the National Integrated Drought Information System (NIDIS) released an early warning report saying that about 27 percent of the Midwest was experiencing an abnormally dry period that could lead to a drought, while 9 percent is already experiencing a drought.

According to the agency, the region has been much drier than normal in the past four to six weeks, and conditions are expected to worsen in the following weeks, possibly extending the areas affected by droughts. While this is not a new issue for the Midwest, it is early in the year for the region to experience such a dry period.

The U.S. Department of Agriculture (USDA) forecasted the country's corn production to reach a record-high 15.3 billion bushels this year, but if dry temperatures carry on in the next few weeks, these could have a significant negative impact on the corn crops in the Midwest, as the region could face the worst drought in 30 years, since the 1983–1985 North American drought.

The USDA's National Agricultural Statistics Service recently reported increasingly dry topsoil, poor pasture conditions in Missouri, and limited moisture for newly planted crops.

"We have very high temperatures all the way up through the northern plains of the Midwest, which impacts more than just corn and soybeans—it's impacting other crops as well," Curt Covington, senior director of partner relations at AgAmerica, America's largest nonbank agricultural lender, told Newsweek.

"This is not unusual, we have seen this before," he continued, adding that this year's crop, so far, looks strong and very healthy. "But we need some rain. If we don't have some rain come this summer, it's going to impact the corn crop."

Covington specifies that widespread droughts in the Midwest wouldn't translate into the classic "doomsday" scenario, a shortage of corn, but into a surge in corn prices which would eventually weigh on consumers.

"If the drought continues and it becomes more severe and carries on for a bit, I think you could see a 10- to 15-percent reduction in the amount of actual corn crop," Covington said. "My view is that corn prices are going to continue to rise, not just because this year's crop could be off a bit, but in expectation of commercial offtake of the corn. There just isn't a lot of stock available."

Covington says that the stock-to-use ratio of corn—a measure of supply and demand for a given commodity—is "the lowest level it's been for years," suggesting a tight supply of corn already, which would only be exacerbated by a cut in production because of droughts.

Covington said that it is "a little too early to tell" how much corn prices could increase if dry conditions continue. "Obviously it's a global crop, and how the crops shape up in other parts of the world this summer will determine the global price of corn and soybeans," he said.

"I would say that if we start seeing that the corn is not progressing well and that it's not in good condition, meaning the quality of the crop and the number of bushels expected to be produced—if that were to fall below, say, 15 billion bushels come July, corn prices could go up $0.25 to $0.50 a bushel."

Global corn prices have remained high after Russia's invasion of Ukraine first hindered supply across the world, while dry conditions in the U.S. have impacted the domestic market. On a global level, the price of corn rose by 0.08 percent a bushel on Monday, as reported by Reuters.

Some 10 million bushels of corn are produced in the Corn Belt each year, with production having exploded in the last 50 years. As the region is expected to become hotter in the coming years and decades, farmers are already trying to adapt by cultivating drought-resistant crops, on which the future of the region's economy will likely depend.

USDA data shows that 34 percent of the region is currently in drought, while 28 percent of the soybean crop is experiencing drought conditions.

Update 6/7/23, 03:05 a.m. ET: This article has been updated with a new graphic.