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If you’re wondering whether the US drought will create a global food crisis, the answer’s easy. It’s yes, because there’s a food crisis already. The latest year for which we have figures is 2010, when 925 million people were declared malnourished. Soon after the number was announced, the World Bank corrected it upward, and recently said that the number of hungry people is “almost 1 billion”.
Make no mistake: the US drought is fierce. In June this year, out of a possible 171,442 temperature records, 2,284 were broken and 998 were tied. The London Olympic Games should be so lucky. The drought isn’t merely bad because the crops are parched. Climate change has nudged the temperature more than a degree higher than the previous record-breaking US drought in the 1950s. The heat is killing natural systems, and making recovery far harder. We don’t yet know what the final reckoning will be for food prices. Corn hit a record $8 a bushel on Monday (in September 2006, the price was nearer $2 a bushel). The price is driven by a demand for animal feed, high-fructose corn syrup, and an incredibly stupid US biofuels policy that mandates the transformation of food into ethanol. With the US producing over half of world corn exports, and with the price of those exports set by domestic uses of corn, the US drought will have a profound impact on prices.
Other grains aren’t having a great year either. The US is a major soy exporter, and prices have soared over the past few days. Nor is America the only place to suffer extreme weather. This year, a late monsoon in India, and an ongoing southern European heatwave, add to the uncertainty about harvests and crops.
Uncertainty is profitable. The Food and Agriculture Organization is worried about price swings, even though prices are far from their 2011 peaks. Volatile prices create markets for hedge funds to trade and gamble on future trends. Traders, enabled by lax futures regulations, are perhaps the only people to see the bright side of the beating sun.