FXstreet.com (Barcelona) - It is natural to expect that the sector that would be hit the hardest by the drought is the U.S. agricultural sector and the people who work in it and own farms or related business. However, according to the NAB Analyst Team, “within this sector the range of experiences is likely to be extremely varied with some farmers likely to see large gains in income while at the same time others face extreme difficulties.”

“While crop destruction by itself has a negative impact on farm income, commodity markets have reacted quickly to the deterioration in conditions by increasing prices. It is the interaction of the two that will determine overall farm incomes.” the Team adds. How this plays out over time is a guessing game, but looking at how estimates prepared by the United States Department of Agriculture (USDA) have changed since June provide as good a guide as any.

Since June, 2012-13 marketing year (i.e. the current crop) production estimates have been marked down significantly for corn (-27.0%) and for soybeans (-16.0%). There has been little change in estimated wheat production (with this year’s harvest occurring before the worsening in conditions). However, at this stage the USDA’s price estimates for corn and soybeans have increased by more than the reduction in production, and projected prices have also risen significantly for wheat.