Weather And Markets

The big “D” word (drought) is getting a lot of discussion by weather prognosticators and by grain market analysts during the late winter period, as we’re preparing to plant the 2006 crop. Many areas of the Southwest U.S. and large portions of Texas and Oklahoma have been extremely dry this winter, as have some areas of Nebraska, Iowa, Missouri and Illinois. Even Southern Minnesota and Northern Iowa have been relatively dry the past couple of months; however, most of these areas have above average stored soil moisture as we head into the 2006 growing season.

The very dry weather patterns in many areas have spurred a lot of discussion that we could be headed into a major drought in many of the crop producing areas of the U.S. in the 2006 growing season. Very dry conditions in parts of Central Illinois and Eastern Iowa early in the 2005 growing season looked to be the start of a major Midwestern drought. However, timely rainfall and moderate temperatures later in the growing season kept the crop losses from the dry weather pattern in 2005 more isolated in nature.

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 18 years ago. However, Taylor is not yet ready to predict a major drought in the Midwest U.S. for the summer of 2006, because the current instability of global weather patterns.

The talk of potential drought in 2006 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 2006, there are good prospects for increased corn export demand and domestic usage in the coming months, and for less planted corn acreage in 2006, compared to a year ago. However, offsetting this good news for the corn markets is the fact that we have the second largest corn carryover in history at 2.4 billion bushels, plus a large amount of 2005 corn still in on-farm storage that needs to be marketed in the coming months.

Most market observers are not nearly as optimistic about the prospects for soybean markets in the coming months, unless a major Midwestern drought does develop this summer. The estimated carryover supply of U.S. soybeans is over 500 million bushels, which is more than triple the size of the soybean carryover just two years ago. In addition, soybean export sales are lower than one year ago and 2006 planted acreage of soybeans in the U.S. is expected to increase.

Producers should remember that any better-than-expected crop conditions and improved yield prospects during the 2006 growing season could cause any 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.

Crop Insurance Deadline
March 15 is the deadline to purchase crop insurance for the 2006 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 2006 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.

Producers may also want to consider the GRIP insurance, which insures 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 2006.

Editors 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.