Be careful about drought hype

drought.jpgAgribusiness is probably the nation's most under-reported industry, which means that much of the recent coverage about crop damage is being handled by newspeople who - how shall I put this - don't know what they're talking about. Last night's evening news on CBS made it seem as if the drought would lead the country to another recession. Soon. Certainly, the lack of rainfall, especially in the nation's midsection, is a serious matter for the farming business, but its effect on the overall economy is less clear cut. While Bank of America economist Michelle Meyer says that corn, soybean and wheat prices have soared, the impact will be more pronounced on producer prices than consumer prices. From Business Insider:

The U.S. Department of Agriculture has already warned that over 1,000 counties across America are natural disaster areas because of the drought which will hurt corn and soybean yields. In fact, only 40 percent of soybeans were said to be in "good or excellent" condition, and farmers expect their corn harvest to be down 12 percent from their June prediction. Farmers are seeing their costs rise and yields fall. "Farmers are able to sustain irrigation, but at a high price," according to Meyer and her team. "They will have to use water from wells, which drains power and is costly. In addition, they will have to be creative in feeding cattle given scorched grasslands."

"Worst-in-Generation Drought Dims U.S. Farm Economy Hopes" trumpets a Bloomberg story, but near the end of the piece there's this:

Yet with agriculture's modest share of the U.S. economy, a single season's drought may have little lasting impact on the national economy, said Bruce Babcock, an economics professor at Iowa State University in Ames. Even the impact on food prices will likely be fleeting, he said. "If it's a one-year drought you'll see some impact on food-price indexes, but it will be a one-time shot," said Babcock. "It won't be a sustained inflation."

Adding to the confusion were recent news reports about several California counties, including Kern, Inyo, Kings, Los Angeles, San Bernardino, San Luis Obispo, Santa Barbara, and Ventura, being designated as federal disaster areas. However, the designation is not the result of drought damage, but losses caused by freezing temperatures, excessive rain, and high winds several months back. Meanwhile, L.A.-area food costs increased just 0.2 percent in June and 2.1 percent over June 2011. That's well below the 4 percent levels at the end of last year. It's possible this will still turn out to be a big story, though so far it seems a bit hyped up.

More by Mark Lacter:
American-US Air settlement with DOJ includes small tweak at LAX
Socal housing market going nowhere fast
Amazon keeps pushing for faster L.A. delivery
Another rugged quarter for Tribune Co. papers
How does Stanford compete with the big boys?
Those awful infographics that promise to explain and only distort
Best to low-ball today's employment report
Further fallout from airport shootings
Crazy opening for Twitter*
Should Twitter be valued at $18 billion?
Recent Weather stories:
Yolanda strikes central Philippines with 195 MPH winds
National Weather Service predicts another dry winter for LA area (video)
Just when you were loving the heat — rain on the way
On this day in 1939, a tropical storm hit LA
New weather talent coming to LA: Crystal Egger

New at LA Observed
On the Media Page
Go to Media

On the Politics Page
Go to Politics
Arts and culture

Sign up for daily email from LA Observed

Enter your email address:

Delivered by FeedBurner

Mark Lacter
Mark Lacter created the LA Biz Observed blog in 2006. He posted until the day before his death on Nov. 13, 2013.
Mark Lacter, business writer and editor was 59
The multi-talented Mark Lacter
LA Observed on Twitter and Facebook