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Drought creates crop uncertainty into next year

Eve Troeh Dec 11, 2012
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Drought creates crop uncertainty into next year

Eve Troeh Dec 11, 2012
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Today the U.S. Department of Agriculture puts out several reports, its last of 2012. The year’s been a tumultuous one as drought swept the country.

But drought made this year the second highest on record for farm income, and also the second highest for revenue from exporting U.S. crops — because the crops that did get to market got a higher price.

The USDA expects feed corn to sell at $7 or $8 a bushel, a high price, but also a wide price range. That swing of a dollar in price is adds another layer of uncertainty for food companies and meat producers.

“Think of what it would cost a meat processor for a full year at those different prices,” says Morningstar analyst Ken Perkins.

Since no one knows what feed will cost, meat costs will be unpredictable into next year, too, he says. Despite the higher prices, U.S. farmers do not want another year of drought or low yields. If they continue to produce less corn, soy and wheat than expected, other countries will pick up the slack.

If no one else can make up the gap in U.S. production, that will drive up prices in the global market, says Darin Newsom at DTN Financial. And he doesn’t like the weather he’s seeing so far this season.

“We are heading into the winter in a worse drought situation than we were last year at this time,” Newsom says.

A dry winter means crops start with less nutrient-rich topsoil in spring, and then who knows what summer will hold. Usually December is a pretty boring time for farm reports. Not much is growing, after all.

But in this environment, Newsom says, every indicator gets watched more closely.

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