Following the release of the United States Department of Agriculture’s Crop production Report, experts have warned of repercussions including increased food and feed prices. The USDA report today revealed that severe drought in the country has left maize and soy crops in their worst state since 1988.

The report comes on the back of the UN Food and Agriculture Organisation’s Food Price Index, which showed global food prices rose by 6 per cent in July and news of drought in other major cereal growing regions including parts of Russia and India. As grain rallies pushed prices to record levels last month, FAO economist Abdolreza Abbassian warned that panic over the effects of droughts, exacerbated by commodity speculation, would affect access to food for the world’s poortest people.

Over the past month, the price of maize has risen 23 per cent; analysts have said this will have implications for world food prices as the staple grain is used in a wide variety of foodstuffs. The same is true of wheat, although, despite below average monsoon rains in India, FAO analysts have said rice prices remain stable. Nevertheless, price increases for other grains are beginning to take effect; UK millers have said the price of flour will increase over coming weeks and feed prices are likely to follow suit.

In the wake of today’s USDA report, experts from HGCA, the cereals and oilseeds division of the AHDB, said that feed prices are likely to be affected. Jack Watts, AHDB/HGCA Senior Analyst, today commented, “Early in the spring in response to the strongest plantings since the 1930s, the world was anticipating a recovery into global feed grain supplies, however the events of the grain situation is in fact likely to get worse rather than better than last year.”

According to HGCA, high prices are already having an impact on demand forecasts with US feed demand for maize now forecast at 103.51Mt, 12.07Mt below last season. Maize demand from US ethanol producers is forecast at 114.3Mt, 12.7Mt below last season.

This week’s reports have sparked alarm and calls for action from a number of anti-poverty organisations; Oxfam has called on governments and policy makers to tackle rapidly rising food prices. The charity’s head of economic justice policy, Hannah Stoddart said, "These latest figures prove yet again that there is something fundamentally flawed in the way we produce and distribute food around the world."

The UN has also called on the United States to relax its ethanol quota, which it is believed would help prevent a food crisis. The proportion of grains used for biofuel production is steadily increasing, as is the amount used for animal feed as dietary change sees demand for meat and animal products increasing in a number of ‘emerging economies’.

José Graziano da Silva, director-general of the FAO made the call earlier today, advising that a competing demand for the decimated US maize crop would put unsustainable pressure on maize prices and drastically limit availability. He said, "Much of the reduced crop will be claimed by biofuel production in line with US federal mandates, leaving even less for food and feed markets."

Currently, around 40 per cent of the maize grown in the United States is used in biofuel production.

Elsewhere in the world, Russian wheat production was forecast down by 6Mt to 43Mt. Analysts had been anticipating an official reduction in figures on Wednesday but the Russian Government reiterated their belief that Russia would harvest 75-80Mt of grains in 2012. However, Ukrainian wheat production was forecast up to 15Mt from 13Mt previously as harvest results beat expectations. Maize production was forecast at 21Mt, down 3Mt from the previous estimate. Ukraine is likely to be a key supplier of maize to the global market this season due to the lower US availability.

Early Australian wheat forecasts were left unchanged at 26Mt, despite concerns over dry weather, which is also being experienced in parts of the country.

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