Weather And Markets

Drought is getting some discussion by weather prognosticators and grain market analysts during the late winter period, as we are preparing to plant the 2007 crop; however, not as much as a couple months ago. Many areas of the southwest U.S. and large portions of Texas, Oklahoma and other Plains States were extremely dry earlier this winter, but have received more moisture in recent weeks. Even southern Minnesota and northern Iowa were relatively dry into early January; however, most of these areas have received above average precipitation in February. The very dry weather patterns that have existed in many areas has spurred a lot of discussion regarding the potential for a major drought in the crop producing areas of the U.S. during the 2007 growing season.

According to Elwynn Taylor, Iowa State University climatologist, historically, the midwestern U.S. suffers a major drought that significantly impacts crop production about every 19 years. Interestingly, the last such major drought in the midwestern U.S. was in 1988, or 19 years ago. However, Taylor is not yet ready to predict a major drought for the summer of 2007, because the current instability of global weather patterns.

The talk of potential drought in 2007, on top of the already strong grain markets, has made many producers and some grain market analysts quite “bullish” on grain markets for the coming months. The optimism is greatest with the prospects for the corn markets. In addition to a potential summer Midwestern drought in 2007, there are good prospects for further growth in ethanol production and continued corn export demand in the coming months. The projected corn ending stocks for 2006-07 are estimated at 752 million bushels, which is down significantly from the corn carry-over of 2.4 billion bushels for 2005-06 or the 2.1 billion bushels for 2004-05, and is even lower than the 958 million bushel corn carryover for 2003-04. To put it another way, USDA is projecting that the U.S. will utilize almost 11.8 billion bushels of corn in the 2006-07 marketing period for livestock feed, ethanol, food products, seed, exports, etc. This means that a 752 million bushel carryover represents less than one-month supply of U.S. corn reserves, as we head into the 2007 growing season. We will likely see a significant increase in planted corn acreage this year, compared to a year ago; however, it is estimated that it will take an additional 8-10 million acres of corn at “trend-line” national average yields, just to meet the corn demand and to maintain the corn ending stocks.

The good news for soybean markets is that any significant increases in corn acreage in the Midwest for 2007 will largely be the result of reduced soybean acres. This should help strengthen soybean markets in the coming months, even though soybean ending stocks are currently at a fairly high level. Later this month, the USDA “March Plantings Intentions” Crop Report will be released, which should give us a good indication of the likely level of national corn and soybean acreage for 2007. Producers should remember that any better-than-expected crop conditions and improved yield prospects during the 2007 growing season could cause any major corn and soybean price rallies to be short-lived. In a normal year, the best grain pricing opportunities for both grain in storage and for new-crop corn and soybeans usually occur from late winter to early summer (March – June). Even if there is a major drought, the biggest price impact is usually on the growing crop, and not on the grain that is in storage from the previous year. Many farm operators still have a considerable amount of their 2006 corn and soybean crop stored on the farm, and need to pay close attention to grain marketing opportunities in the coming weeks and months.

Crop Insurance Deadline

March 15 is the deadline to purchase crop insurance for the 2007 crop year in Minnesota. Be sure to compare the standard APH (yield only) policies with the Revenue Assurance (RA or CRC) type policies that offer a revenue guarantee that is based off of yield and price. The base prices and the base guarantees with RA and CRC policies for corn and soybeans are for 2007 are pretty attractive compared to yield-only APH crop insurance policies, and remember that revenue guarantees do increase with CRC and RA-HP policies by harvest if average prices are higher at harvest time. Some producers are also considering GRIP insurance policies, which insure all acres of a given crop with revenue coverage, but at a lower premium than RA or CRC insurance. However, it should be noted that a GRIP insurance policy will likely not provide protection against isolated crop losses on individual farms or fields from hail, heavy rains, wind, etc. Contact your Crop Insurance Agent to analyze your crop insurance needs and alternatives to determine the most cost-effective crop insurance strategy for your farm operation for 2007.

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.