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Crop Outlook Dimming as July Heat Compounded Drought Damage

U.S. corn farmers hurt by the worst drought in a generation probably will harvest smaller crops than the government forecast this month, based an analysis of dry spells in the past 42 years.

In the five drought years since 1970, farmers on average harvested 85.4 percent of the acres planted, U.S. Department of Agriculture data show. That’s below the 90.6 percent that the USDA predicted for this year on Aug. 10, when the agency cut its output forecast by 17 percent following the hottest July since 1936. The annual Professional Farmers of America survey of more than 2,000 fields in seven Midwest states starts today.

Moderate to exceptional drought conditions covered 51 percent of the nine-state Midwest region as of Aug. 14, compared with less than 1 percent a year earlier, government data show. Corn and soybean crop conditions are the worst since the last drought in 1988, according to the USDA. Corn futures have surged 60 percent since mid-July, boosting the cost of making livestock feed, ethanol and food products.

“In a year like this, the only yield surprises are to the downside,” said Michael Cordonnier, the president of Soybean & Corn Advisor Inc. in Hinsdale, Illinois, who sampled crops in eight states from Nebraska to Ohio during the week ended Aug. 3. “The number of acres harvested this year will fall.”

The USDA, which in July predicted a record corn crop after farmers planted the most acres since 1937, cut its forecast to 10.779 billion bushels, down 13 percent from 12.358 billion last year. The soybean forecast was reduced 12 percent to 2.692 billion bushels, down from 3.141 billion in 2011.

Further Cuts

U.S. corn harvests were below normal during the drought years of 1974, 1976, 1980, 1983 and 1988, USDA data show. On average, farmers have collected 89.2 percent of the planted acres since 1970.

Cordonnier said the USDA will have to cut its corn estimate by an additional 5.3 percent and soybeans by 2.3 percent. Output from the U.S., the world’s largest grower and exporter of both crops in 2011, will drop for a third straight year. The USDA will next update its forecasts on Sept. 12.

“It’s a catastrophe,” said John Cory, the chief executive officer of Rochester, Indiana-based grain processor Prairie Mills Products LLC. Cory, who predicted in July that corn output would fall below 11 billion bushels, now expects a harvest as low as 9.5 billion bushels. He said the soy harvest may fall below 2.5 billion.

Yield Damage

After the worst U.S. drought since 1956, corn plants that farmers will begin harvesting next month are maturing three times faster than the five-year average, and the rate of pod development by soybeans is 19 percent above normal, USDA data show. Rapid development cuts yield potential and reduces the benefits of rains the past two weeks, Cory said.

The 20th annual Pro Farmer tour will include about 120 grain buyers, analysts, traders and farmers as crop scouts to survey fields in Ohio, Indiana, Illinois, Iowa, Nebraska, South Dakota and Minnesota. Corn-yield estimates and soybean-pod counts will be reported daily and then incorporated into a national crop forecast by Pro Farmer on Aug. 24.

“The heat was the big problem this year for corn pollination,” when kernels were forming on cobs in July, said Kevin Rempp, 54, who farms about 1,200 acres of corn and soybeans with his father near Monetzuma, Iowa. Rempp predicted corn yields in Iowa, the biggest U.S. producer, will drop 30 percent from last year and soybeans will be 10 percent to 20 percent lower. “I have farmed for more than 35 years, and this crop is the hardest to predict because yields are extremely variable across each field.”

Prices Rally

Corn futures for December delivery rose 0.5 percent to $8.1125 a bushel at 8:12 a.m. on the Chicago Board of Trade. The price reached an all-time high of $8.49 on Aug. 10. Soybean futures for November delivery advanced 0.7 percent to $16.57 a bushel on the CBOT. The most-active contract reached a record $16.915 on July 23.

Drought has affected 87 percent of U.S. corn, 85 percent of soybeans, 63 percent of hay and 72 percent of cattle, the National Climatic Data Center said on Aug. 16.

Rain Relief

Increased rain from South Dakota to Ohio and cooler weather than the record-setting heat of July will reduce the chances for additional cuts in the government’s corn forecast and may mean a boost for soybeans, said Dale Durchholz, the senior analyst for AgriVisor LLC in Bloomington, Illinois.

The government’s crop forecasts this month reflected the biggest August reductions since at least 1974. In 1988, the final corn forecast increased 9.1 percent from the August estimate and soybeans gained 4.8 percent rains helped to boost yields, Durchholz said.

The wetter August weather pattern may be tied to rising eastern equatorial Pacific Ocean waters and the emergence of an El Nino weather condition, Gail Martell, the president of Martell Crop Projections in Whitefish Bay, Wisconsin, said in a report Aug. 16.

“The rains have at least stabilized the corn crop, and soybeans may add a few bushels,” Durchholz said. “The big USDA cuts probably account for most of the drought losses.”

Misleading Appearance

Thriving, green soybean plants next to fields of brown and dead corn may be a sign that yield potential is lower than expected, Bill Wiebold, a soybean agronomist at the University of Missouri in Columbia, said in a report on Aug. 8.

Visually healthy fields may be the result of high nitrogen levels in leaves because there are fewer pods to fill with soybeans, Wiebold said in the report. The plant requires a steady flow of water moving up roots to the pods to produce beans. The prolonged drought may have caused soybean blossoms to abort and no pods for the seeds to develop.

“When there is no water, the system stops working,” Wiebold said. “That has happened in many soybean fields. We just have not experienced anything quite like this before.”

Donna Jeschke, 59, who farms about 3,600 acres with her husband, brother and nephew about 80 miles southeast of Chicago near Mazon, Illinois, said she expects the farm’s corn yields will be 50 percent below the five-year average of 190 bushels an acre, while soybean yields may fall 15 percent.

Damaged crops may not mean losses for growers as government-subsidized crop insurance and higher prices helps to partially preserve farm income, the Federal Reserve Bank of Chicago said in a report Aug. 16.

“Crop insurance will allow farmers to pay their bills and buy inputs to plant crops the next year,” Jeschke said. “Farmers have to be optimists and look ahead to better weather next year.”

To contact the reporter on this story: Jeff Wilson in Chicago at jwilson29@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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