U.S.D.A. confirms toll from heat and dryness on crops
July 17, 2012
by Ron Sterk
Farmers’ hoped-for benefits from early spring planting have been dashed by equally early hot, dry weather — the hottest first six months of any year on record in the United States — reflected in tumbling crop condition ratings in several key corn and soybean growing states, with significant loss in yields and production indicated last week by the U.S. Department of Agriculture. Futures prices for corn, soybeans and wheat have soared with soybeans hitting a record high.
Although it was nearby July corn and soybean futures prices that surged to near historic highs (with corn hitting a high of $7.86¾ a bu on July 12, a bit shy of the record $7.99¾ a bu set June 10, 2011, and soybeans setting a new high of $16.79½ a bu on July 9 and 11), the focus now is on the August and forward contracts as the July contracts expired July 13. Corn futures were up more than 40% since early June, and were nearly flat through July 2013, while soybean futures were up closer to 20% with deferred months at a discount.
While corn and soybean crops are most affected, their meteoric price rises have spilled over to wheat, which for the most part is in good shape as the hot, dry weather allowed for a much earlier-than-normal harvest. The spring wheat crop, along with sugar beets and other crops in the Upper Midwest, started the season dry but have since received beneficial rains. The same can’t be said for corn and soybeans, especially in the eastern Midwest, and for pastures in many states. But clearly so far the greatest impact has been on the corn crop.
While not survey based (that comes in the Aug. 10 Crop Production report), the weather’s impact on corn especially but also on soybean production prospects was reflected in the July 11 World Agricultural Supply and Demand Estimates. The U.S.D.A. pro-jected an average 2012 U.S. corn yield of 146 bus an acre, down a drastic 20 bus, or 12%, from its earlier (and initial) projection of 166 bus an acre, which many in the trade had considered too high even before the severe weather conditions occurred. With a modest reduction in projected harvested area based on its June Acreage report, the U.S.D.A. projected 2012 U.S. corn production at 12,970 million bus, also down 12% from the record projection in June of 14,790 million bus.
If realized, the corn crop would slip from by far the largest ever to the third largest, behind 13,092 million bus in 2009 and 13,038 million bus in 2007.
Soybean output was pro-jected at 3,050 million bus, down a more modest 5% from 3,205 million bus in June. An 8% cut in projected average yield, to 40.5 bus an acre, partially was offset by increased area reflected in the June Acreage report.
The questions are: how much of the damage to crops is irreversible, will it get worse, or could there be some recovery should the past week’s more moderate weather persist?
Damage is ‘irreversible’
David Salmon, owner of Weather Derivatives, a Belton, Mo.-based energy and agricultural weather consulting service, suggests the damage, especially to corn, cannot be undone and will continue to worsen even if the weather moderates.
“It’s not going to put bushels back on,” Mr. Salmon said. He expects temperatures across much of the Corn Belt in the low- to mid-90 degree range returning this week. Those highs require as much as 2½ inches of rain a week to prevent further crop deterioration, he said, “which isn’t going to happen.”
Instead, Mr. Salmon, as well as meteorologist Drew Lerner in the July 10 issue of Milling & Baking News, expect the rest of the summer to bring above normal temperatures and below normal rainfall across most of the Corn Belt.
Mr. Salmon estimated the average U.S. corn yield may fall as low as 134 bus an acre based on conditions July 8, down from his forecast of 165 bus in late May and 155.4 bus at the same time last year. He noted the U.S.D.A.’s latest corn yield projection of 146 bus an acre, based on conditions around July 1, was similar to his 143-bu estimate for the same week. But corn crop condition ratings fell another 8 percentage points in the week ended July 8, he noted.
The final U.S. average corn yield last year was 147.2 bus an acre, according to the U.S.D.A., when the good to excellent rating in the 18 major states stood at 69% in early July 2011.
In its July 9 Crop Progress report, the U.S.D.A. rated the corn crop in the 18 major states 40% good to excellent, down from 48% a week earlier. The crop in 4 of the top 10 corn growing states was below 20% good to excellent. The eastern and southern Corn Belt clearly was faring the worst with the Upper Midwest and western Corn Belt better by comparison.
“Drought conditions continued to worsen; temperatures exceeded 100 degrees several days during the week (ended July 8),” the Indiana U.S.D.A. field office said. “A large portion of the corn crop moved into the pollination stage under these extreme conditions. Some farmers and crop insurance representatives are discussing the prospect of destroying or cutting corn for forage.”
Indiana is typically the fifth-largest corn producing state but has some of the lowest ratings this year with 12% of its crop rated good to excellent and 61% poor to very poor.
Soybean crop condition declines
Although planted later, soybeans also have seen a drastic decline in condition with the crop in the 18 major states rated 40% good to excellent as of July 8, down from 45% a week earlier and 66% at the same time last year. The poorest conditions basically mirror those of corn.
“Many double cropped soybean fields have had very poor emergence due to dry soil, while some farmers continue to wait for rain before planting,” the Indiana field office said. Top soil moisture in the state was 97% short to very short.
Because of the earlier-than-normal winter wheat harvest in the Central states, double cropped soybeans area was expected to increase this year. There were anecdotal reports of some farmers in southern Illinois and surrounding areas destroying corn and planting soybeans.
A number of analysts have compared this year’s weather and crop situations with 1988 when the U.S. average corn yield tumbled to 84.6 bus an acre, down 35 bus, or 29%, from a year earlier and the last time it was under 100 bus. While large changes in corn or soybean production forecasts are unusual in the July WASDE, the U.S.D.A. in July 1988 slashed its corn crop estimate by 2,100 million bus, or 29%, from June. Last week the U.S.D.A. reduced the corn production estimate by 1,820 million bus. It should also be noted the corn crop was in much worse condition on this date in 1988, with a mere 14% of the crop rated good to excellent and 50% rated poor to very poor on July 10.
While no one is predicting a disaster of the magnitude of 1988, in part due to more drought tolerant varieties of corn and the largest planted area since 1937, the fact also remains that corn use is far greater than in 1988. Total corn use in 1988-89 was projected in July 1988 at 7,215 million bus, compared with projected use in 2012-13 (the 2012 corn crop) of 12,720 million bus. While feed and residual use of corn hasn’t changed much over the years (projected at 4,300 million bus in July 1988 and at 4,800 million bus in July 2012), corn use for ethanol wasn’t a factor in 1988 but was projected at 4,900 million bus for 2012-13.
One concern about the corn supply is that the U.S.D.A.’s latest estimate was not adjusted for potential abandonment. Typically, about 90% to 92% of planted acres are harvested. The U.S.D.A. still was at a 92% harvest rate. In the dry years of 1988 and 1993, the harvest rate was 86%.
If the corn crop continues to decline, something will have to give on the demand side, which generally is the result of rationing due to high prices.