While I know farm work is never done, nor does it stop for the holidays, there is a bit of end-of-the-year relaxation; sort of a collective deep breath before we all begin the race again.
Heading into the holidays, the grain markets had given livestock and poultry producers a reprieve in terms of feed costs. Reports are that many pork producers have taken smart advantage of that and addressed feed needs well into 2012.
Grain markets took back some of that relief as the New Year approached with weather concerns for the South American crops dominating price trends. Yesterday, forecasts for rain in that part of the world pushed grain markets lower. (And my urban friends wonder why I’m so obsessed with the weather—it’s always growing season for something somewhere.) So, as if there was any doubt, volatility reigns.
The global grain supply is still not out of the woods—far from it-- and La Nina continues to hang around, stirring up weather challenges. At least this year’s version is less powerful than last year’s.
Argentina and Brazil have been hot and dry for a couple of months and crops are now well into the critical pollination and pod-setting stages. For South American crops January is our July, and the question is will rains provide relief at the right time and in the right amounts?
Argentina is a significant global corn supplier and Brazil is a major soybean producer. We’ll have to await the true outcome, but some analysts are cutting their crop projections by 20 percent or more. USDA had been looking for Argentina to produce a record corn crop— a 29 percent increase from 2011.
USDA will release several grain-related reports next week—Jan. 12. Among those will be the World Agriculture Supply and Demand Estimate and the markets will be antsy. The report will shed a light on global grain supplies and usage, and will include final size estimates of the 2011 U.S. crops.
For corn, the ethanol scene will be a bit different this year. Both the ethanol blenders’ tax credit and import tariffs disappeared on Jan. 1. To head off that event, ethanol production had been exceeding mandated levels (actually that’s occurred over the past two years.) Brazil is expected to return as an ethanol exporter, and U.S. ethanol production could retreat to the mandated level this year and into the future. The point being, corn used for ethanol production won’t grow anywhere near the pace of recent years. That doesn’t mean we’ll suddenly have an abundance of corn.
The United States still needs to build up its feed grain supplies, and even though it’s not our growing season, the weather is worth watching. With the exception of New Mexico’s freak snow storm, the winter has been warm and dry across the United States. No snow at Christmas is always disappointing for us northerners, but it sure allows for easier and safer traveling. It also prevents disruptions in marketing animals and in feed deliveries.
January temperatures in the 40s, 50s, even 60s F will help shorten the winter on the plains, but it also creates nervousness. True to our colors, this week I heard some ag folks lamenting, “I hope we don’t pay for this come spring.”
While January can still change course, and February and March snow storms are always in the cards, it’s not folly to be concerned about subsoil moisture. Again, La Nina likes to toy with temperatures and moisture supplies.
It’s no secret that in 2011 Texas, Oklahoma and parts of Kansas faced the worst drought on record. While some moisture has returned, that kind of deficit isn’t resolved quickly. More than 67 percent of Texas and 50 percent of Oklahoma is still concerned extremely dry. What’s more, several long-term forecasts have that dryness expanding. Parts of Minnesota, Iowa, Nebraska and South Dakota were very dry through the fall, and haven’t gotten a reprieve since. In fact for many states the past 90 days haven’t even provided one-quarter of the “normal” precipitation levels. Add North Dakota to the “snow-void” list, and let’s not overlook the southeastern states—Georgia, Alabama and South Carolina—all of which are dry.
Meanwhile, La Nina could keep the eastern Corn Belt wet well into the spring, presenting crop growers there a repeat of 2011’s challenges.
While there’s nothing you can do to change the weather, keeping an eye on it and its potential impact, then factoring it into risk-management strategies is something you can do.
So, while we had a bit of a break to catch our breaths, it’s back to work and back to monitoring the markets, the weather and the feed-grain supplies for the year ahead.