Commentary: Add drought to market volatility mix

by Ron Sterk
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With Minneapolis spring wheat prices at all-time highs – and moving higher – and other markets and grains and oilseeds trying to keep pace, the last thing the market needs is a drought that would cut 2008 production from levels that would replenish shrinking supplies.

But the Seasonal Drought Outlook from the National Weather Service singles out areas of concern, mainly in the hard red winter wheat states. Granted a few months remain before winter wheat harvest, and even more months before spring wheat and fall row crop harvest, the situation still merits watching.

In its U.S. Drought Monitor, the N.W.S. shows a large area of abnormally dry to moderate drought in the hard red winter wheat belt, including the western third of Kansas, eastern Colorado and New Mexico, western and southern Oklahoma and much of Texas.

Dryness in the key bread wheat states of Kansas, Oklahoma and Texas, which typically grow half of the nation’s hard red winter wheat crop, was brought to light in the U.S.D.A. Winter Wheat Seedings report of January, which showed a 4% acreage reduction from a year earlier while the trade had expected an increase. Rated poor to very poor in the latest U.S.D.A. state crop and weather bulletins was 61% of the wheat in Texas (29% fair), 29% in Oklahoma (39% fair) and 25% in Kansas (33% fair).

"The odds favor drought expansion by the end of April in central Texas toward Oklahoma, with additional expansion from western Kansas into eastern New Mexico," the N.W.S. said.

Extreme and exceptional drought, the two highest categories, remained in parts of the southeastern states of Alabama, Georgia, Tennessee and North Carolina. Most of the dry area is a carryover from last year’s extreme drought situation across the Southeast. The N.W.S. expects some improvement in moisture conditions across the region, but "drier weather expected later in the season means conditions could deteriorate following initial improvement." While those states are not top producing grain areas, they are important for soft red winter wheat, soybeans, corn, cotton, fruits and some vegetables.

The good news is dry conditions are predicted by the N.W.S. to improve in much of the key spring wheat and durum producing areas of Montana and North Dakota. These are the classes of wheat in tightest supply. Also good news for grain and soybean supplies is that moisture appears good across the Corn Belt, from Nebraska to Ohio.

While grain and oilseed prices likely will dictate spring planting decisions by U.S. and Canadian farmers, as always the weather will play a key role in final production, just as it contributed to current tight supplies and high prices.

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