Posted by: usset001 | August 7, 2012

Drought in the Corn Belt

Droughts happen. They are hard to predict, but they happen.

In March I wrote a short piece for University of Minnesota Extension. I talked about new crop corn and soybean pricing opportunities. Despite dryness in Iowa and Minnesota, I said nothing about drought. When it comes to weather, I let climatologists take the lead.

My first draft was returned to me with a terse demand; Say something about the drought! Reluctantly I added a paragraph that included the following; “Northwest Iowa and southern Minnesota are in the midst of severe drought. If dryness persists, strap in for a ride as higher prices and volatility return.” My piece was published in early April.

I made the call! Never mind that the climatologist cited in my piece radically changed his Corn Belt outlook from dry to normal on the same day my piece was published. Never mind that El-Nino was on its way, promising to bring favorable growing conditions to the Corn Belt. Never mind that the areas of concern in early spring – Minnesota and northern Iowa – received generous rains in May and early June. My drought comments were, in hindsight, spot on.

The Corn Belt drought of 2012 is a broad based drought that started early and persists. Higher temperatures have intensified the dry conditions. The elements are in place to produce a U.S. corn crop that could fall short of trend-line yields by 20% or more. This would place it among the worst U.S. droughts in the last century.

Worst Years for U.S. Corn Yields, 1912-2011

(relative to trend)

Years

Actual Yield* (bu./acre)

Trend Yield** (bu./acre)

Actual vs. Trend

1988

84.6

118.0

-28.3%

1983

81.1

110.5

-26.6%

1934

18.7

24.2

-22.6%

1930

20.5

26.0

-21.2%

1974

71.9

90.8

-20.8%

1936

18.6

23.4

-20.5%

1913

22.7

27.8

-18.2%

1924

22.1

27.0

-18.2%

1993

100.7

121.9

-17.4%

1980

91.0

103.7

-12.2%

2012

?

160.0

* USDA data

**Trend yield based on a simple 30-year regression

The drought of 2012 started early for states located in the southern and eastern parts of the Corn Belt. In June, the drought spread west and north and attacked the corn crop during critical development stages. Recent weather forecasts have turned slightly wetter and cooler. If true, it could stabilize the corn crop and bring welcome relief to the soybean crop.

Six of the top ten corn producing states are in very bad shape. Illinois, Indiana and Missouri (#2, #5 and #9 in corn production in 2011) are disasters with more than 70% of their corn crops rated poor or very poor. Michigan (#10), Ohio (#8), and Wisconsin (#7) are not far behind. For the country as a whole, the latest USDA report shows corn crop conditions similar to 1988 which, depending on how it is measured, may have been the worst U.S. corn crop in the last century.

Iowa (#1), Nebraska (#3), South Dakota (#6) are also detiorating. Minnesota’s (#4) corn ratings stand out as the best among the top ten states, but even our state will have a difficult time matching last year’s subdued average of 156 bushels per acre.

Prices are soaring. New crop corn prices are up over 60% since early June. Unlike the droughts of 1983 and 1988, we are not approaching harvest with a comfortable level of carryover stocks from previous years. Demand will be rationed and rationed quickly. Feed usage will be cut; cattle, hog and poultry producers are in for a very difficult year. Small dairy operations in Minnesota may find it difficult to survive. Exports will be adjusted lower. I am one of many who are trying to figure out how an ethanol mandate fits with a situation that demands responsiveness.

Droughts happen and this one is severe.


Responses

  1. Have you read this? http://www.farmdocdaily.illinois.edu/2012/08/ethanoldoes_the_rfs_matter.html It may be that the Ethanol Mandate may not have a large effect on ethanol demand. Oil companies need ethanol as an oxygenate and will be slow to change since ethanol is cheaper by far than any alternative. Yes, ethanol production will fall at higher corn prices, but by how much?

  2. The Droughts of 1983 and of 1988-1989 were massive. These were very serious. The 2012 drought has continued to 2013, and is getting worse in the Midwest, including the states of Nebraska, Iowa, Minnesota and certain parts of Missouri.


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