Focus on Ag

2012 Drought Being Compared to 1988

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Most of the Minnesota corn crop is currently at a very critical stage, with much of the corn tasseling and pollinating during the first 10 days of July. Heat and moisture stress during that phase of development can affect pollination and kernel development, which can ultimately lower corn yields. It is too early to assess how much damage has already been done to the corn crop by the very hot, dry weather in most areas during this important phase of corn growth. However, corn yield potential in many areas of Minnesota is likely to start dropping if we do not get significant rainfall soon.

Earlier this year, USDA estimated a record U.S. corn crop in 2012 of 14.79 billion bushels, based on 95.9 million planted corn acres and a national average corn yield of 166 bu./acre. Many experts have already lowered they estimated U.S. national corn yield to 150-155 bu., with some estimates even lower. A 150-bu./acre national average corn yield would produce about 13.27 billion bushels of corn this year, which is very near the expected corn usage for the year.

The corn and soybean market prices have responded to the U.S. drought with dramatic market increases. Chicago Board of Trade (CBOT) corn futures prices rose to near $7.75/bu. for the nearby July contract on July 9, and to $7.30 for the 2012 new-crop December futures contract. The December CBOT futures price was $5.06/bu. as recently as June 15. Similarly, the new-crop November soybean futures reached to near $15.50/bu. on July 9, which is an increase of nearly $3/bu. since mid-May.

Local cash corn prices in southern Minnesota were near $7.30/bu. on July 9, and cash soybean prices were above $15.60/bu.; however, there is very little 2011 corn or soybeans left to be priced. Most of the grain now being delivered was forward priced earlier. New-crop harvest-time cash prices for corn and soybeans are near $6.90/bu. for corn and approaching $15/bu. for soybeans. Of course, grain producers in areas severely impacted by the drought need to be very cautious when forward contracting new-crop corn and soybeans, with final corn and soybean production levels very much in doubt. Producers with revenue protection (RP) crop insurance do have some protection when forward contracting up to insurance guarantee.

 

Editor’s note: Kent Thiesse is a former University of Minnesota Extension educator and now is Vice President of MinnStar Bank, Lake Crystal, MN. You can contact him at 507-726-2137 or via e-mail at kent.thiesse@minnstarbank.com.

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