The merchandising ripples will continue depending on the scope and severity of the problems. But unless there’s a dramatic shift in the dry weather pattern of the western Corn Belt and the Plains, this will be a long, rough winter that could be followed by an equally challenging spring and summer. The Plains drought is the most severe in decades, with NOAA’s seasonal outlook showing it to persist through winter, raising questions about 2013.
The 2013 hard red wheat crop is already threatened. “Good/excellent” ratings were at record lows through November, with most of the Plains wheat rated 40% or more “poor/very poor.” Fall ratings don’t determine final wheat yields but they can raise red flags. Pasture ratings are even worse: Nebraska was last rated at 97% P/VP, with Kansas and Oklahoma at 79% and 69%. KC wheat futures are almost $2 over July 13 corn, which sharply lowers the prospects for feeding wheat in the Plains in 2013.
Predicting the 2013 corn and soybean crops is pointless at this stage. But we can lay out a range of possibilities and consider a few ramifications. Let’s assume a repeat of 2012 acres and go from there.
The tables (pg. 9) assume planted corn acres remain at 97 million and that soybeans acres are about 77.5 million. Scenario A assumes widespread problems similar to 2012. Scenario B uses low yields in the Plains and western Corn Belt, but good yields in most other states. Scenario C raises the yields slightly in the Plains vs. Scenario B and Scenario D assumes a reasonable recovery from the drought. As production prospects rise, the scenarios assume usage will also increase, on less wheat feeding, higher ethanol production and exports. A fifth scenario could be considered: lower acres accompanied by the drought expanding eastward with further cuts to yields from this year. A crop of less than 10 billion bushels (2.8 billion on soybeans) would be catastrophic and require even more extraordinary cuts to usage combined with imports to cushion the shortfalls. Bear in mind, these are scenarios — not predictions — and reality could turn out different.
Disappearance will be influenced by production in South America as well as in the United States. And how fast will usage recover even if U.S. crops are bigger? U.S. soybean disappearance was 3.2 to 3.3 billion bushels until this year, with corn at 12 to 13 billion bushels.
Ending stocks of corn could be able to recover somewhat by 2014; much would depend on how fast usage recovers. But with the continuing growth of soybean crushing in China, demand for U.S. soybeans could increase as fast as production recovers and keep U.S. stocks tight.
America’s barometer may be warning us that we’re heading into another Dust Bowl. But a shift to a persistent rainy period this winter would ease the river problems and improve 2013 crop prospects.
Until widespread rains materialize in the Plains and western Corn Belt, however, it’s wise to consider the potential for another year of reduced production, high prices, margin calls, tight stocks, minimal carries in futures and river disruptions, with the resulting merchandising challenges. Make sure your credit line for hedging keeps pace with rising prices, keep margins wide on forward bids, and watch contracts and counterparty credit exposure on open purchase or sales. And watch the barometer!
Diana Klemme is a longtime contributor to Feed & Grain. Contact her at Grain Service Corporation, Atlanta, GA, by calling (800) 845-7103 or email at email@example.com.