Planting season will soon be here and all eyes are fixed on this year’s developments. Winter’s widespread harsh temperatures and snowfall could easily delay planting progress, at least in much of the Midwest. While flooding is often a concern, such warnings seem to be making an early appearance.
The National Weather Service has already outlined prospects that a large swath of the country — from northeastern Montana through western Wisconsin, following the Mississippi River south to St. Louis — could face moderate to major flooding this spring.
Remember last year’s early spring — how warm and wonderful April was, giving farmers an early jump on corn planting and what would become an abundant crop? Well, let’s face it, that was a gift, and it’s not likely to happen again this year. Many forecasters are predicting a cold, soggy, delayed spring.
We all know that weather patterns can shift and predictions can be wrong. But the United States is in a strong La Niña weather pattern and that means unpredictable, dramatic weather swings, particularly related to precipitation. Any question of that should have been answered by the mid-February blizzard that spanned 1,000+ miles and left behind snow measured in feet.
This La Niña looks to be the strongest since 1917 and will likely dictate weather developments well into summer, bringing hot, dry conditions to much of the United States. The time is ripe for a drought. As Elwynn Taylor, Iowa State University professor of agricultural meteorology, points out, it’s been 22 years since the United States has had a “major” drought.
Now, droughts don’t mean what they used to in terms of dramatic, widespread crop failures, but we all know there’s no room for error today. USDA’s year-end stocks projection for corn and soybeans is beyond tight. Corn carryover as of Aug. 31, 2011, is expected to be 675 million bushels, compared with 1.71 billion bushels at the close of the 2009/2010 crop year. Depending on who you talk to, it translates to a 2.5- to 3-week supply. Should this year’s crop fall a couple of bushels short here and there, it will quickly add up to real volume and real concern.
“Unless this year’s weather is better than normal or plantings increase more than expected, stock levels for corn and soybeans should see only modest rebuilding in 2011/2012,” said Joe Glauber, USDA chief economist, at the agency’s outlook session (which was underway as I wrote this).
In predicting this summer’s planted acres, USDA puts corn at 92 million, up from 88.2 million in 2010. The average yield estimate comes in at 162 bushels an acre, which would produce a 13.76 billion-bushel crop. That’s up nearly 10 percent from last year’s crop of 12.54 billion bushels.
Impressive — but it may not be impressive enough. Corn exports and ethanol demand are both expected to grow this year. U.S. export demand will grow because corn supplies elsewhere in the world are no more abundant. Ethanol will grow because of government incentives as well as dramatic unrest in the Middle East. During Libya’s uprising, oil pushed past the $100-per-barrel mark. Remember, oil soared to $150 per barrel in 2008, which isn’t out of the question this year.
High oil prices mean high corn prices, and signs of food inflation had some at USDA’s outlook session pointing to a bit of 2008 déjà vu.
Ethanol production is expected to use a record 4.95 billion bushels of corn from the 2010/2011 season. That’s about 35 percent of total U.S. supplies. Five years ago, ethanol processors used just 12 percent.
“Higher than trend yields or larger planted area could help rebuild corn stocks, but stock levels are not likely to return to recent levels over the course of one or even two seasons,” Glauber said.
So, once again, crop production, use and supply forecasts for this year and next remain cloudy, and markets will remain volatile. You no doubt have a risk-management plan in place. Your business partner, spouse, lender or common sense has assured that. The question now is do you have a feed contingency plan to cover your actual needs for late summer — you know, for that period between old crop’s last days and before the new harvest begins? Steve Meyer, Paragon Economics, for one, is genuinely concerned that some pork producers could actually run out of corn.
You may think that seems extreme and unlikely. Maybe on the surface, but $7- or $8-per-bushel corn also seemed extreme and unlikely. Some countries have embraced the notion of strategic grain reserves, the most recent being South Korea. It’s expected to buy 552,000 metric tons of corn, soybeans and wheat sometime this month.
Think of a personal feed-contingency plan as self insurance — you may not need it and it would be great if you don’t. But it could work as an umbrella to protect your feed needs and your business should the partly cloudy forecast turn out to be something more ominous.