Weather theme continues to point toward dry for '06 summer
In recent weeks, the Midwest has received much needed moisture which has helped alleviate general dry concerns. Most of the Midwest, however, continues to lack moisture on a consistent basis. Timely rains were the primary reason for last year's large crops. As farmers look ahead to the 2006 growing season, an uneasy feeling is beginning to grow when it comes to thinking about summer moisture needs.
In general, most of the Midwest is suffering from a continued dry pattern in which the subsoil moisture levels are down in large pockets. In some areas, rainfall deficits are as much as 10 inches. Various long-term weather forecasts have been suggesting a drier pattern into the summer months.
For most farmers, the question is whether or not dry weather has as much impact today as it did years ago, especially with better tillage practices and improved genetics. Or, has dry weather in recent years had less of an expected impact on yield because of timely rains? The answer is probably both.
There isn't an agronomist or farmer in the country who believes the crop can go without significant moisture or, at minimum, timely rains. Therefore, with current subsoil moisture levels down, if dry weather begins to engulf the crop in late May through July when the plant is young and has yet to develop a significant root system, yield could be much worse than most expect.
Has the market witnessed a "cry wolf" pattern too frequently in recent years? Last year, farmers that were in the heart of the drought regions felt the impact as yields were anywhere from 40 to 60% of normal. In some areas, especially in sandy-type soil, crops were a complete loss. However, due to good subsoil conditions, deep-rooted plants in heavy soils throughout much of the Corn Belt fared significantly better than expected. Relief from hurricane Dennis followed by timely rains made the difference. Bear in mind, that last year the central portions of the Midwest suffered significant dry weather while the western Corn Belt often had more than sufficient moisture. In other words, there was adequate moisture; it just wasn't hitting the right spots.
A full-blown drought could have a major impact. With demand continuing to emerge on a consistent and growing basis, the market will rapidly respond to supply disruptions, real or perceived. Perhaps significant fund buying early this year is a signal that the investment community is anticipating low odds of another significant large crop. The first believable forecast for less than a 10 billion bushel corn crop should rally prices well beyond $3. If forecasts of dry conditions turn into reality by mid-summer, carryout figures could evaporate to near zero. This could send prices to all-time record highs.
Although this scenario is unlikely, it can and most likely will happen some time. Our question is: Are you ready? As a farmer, are you balanced between a solid cash marketing program able to manage opportunities that a bull market will provide? The old Boy Scout motto comes to mind: "Be Prepared"!