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Marketing in drought years - Roy Smith

I get calls wondering how to deal with the current weather situation. Marketing under normal circumstances is tough. Making good decisions when there is the probability of reduced production is even more difficult.

Thinking back over my farming career I realize that no two droughts are the same. I was not yet born when the drought of the 1930s hit Cass County Nebraska. My parents told tales about how hot and dry the weather was in 1934 and 1936. Their comments led me to believe that there was almost no production in those years.

Farm records revealed that farmers in that era raised small grain as well as corn. Most farmers had a cow herd to produce both meat and milk. They also had a flock of chickens. The income page in the record book had an entry almost every week from selling eggs and butter. Times were tough, but there was income to meet family living expenses even in those dry years. It was in 1935 that my dad mortgaged the draft horses and bought his first Oliver Tractor!

Fast forward to the years 1954 through 1956. Those three years saw drought that lasted most of the summer. By then soybeans had become part of the crop rotation. Without herbicides, hand weeding 10 acres of soybeans was a summer’s work for the family. However, the soybeans tolerated the lack of rain better than corn. I was old enough to work for neighboring farmers putting up hay. The goal was to raise enough money to attend college but prospects for that did not look good. Then in 1957 the three-year drought ended and the rains began. College was back in my future.

LIFE-CHANGING EXPERIENCE

Four years of college, two years in the army and five years of being an Vocational Agricuclture teacher left me without memories of drought until 1974. By then I was farming full time and had a family to feed and clothe. The spring of 1974 was wet with late planting. The rain ended and the heat began on June 15. The heat was so intense that the corn leaves curled up before any hint of pollination. In 1974 I had my first and only experience in forward contracting corn that I was not able to deliver. It was a life-changing experience.

That was the year when a corn/bean rotation became the standard cropping practice in eastern Nebraska. The rotation was a life saver for the next three dry years. In both 1974 and 1977 big rains around August 1 brought an end to the dry weather. The rains started early enough to produce good soybean yields. We learned just how tough soybeans can be under extreme conditions.

Many farmers consider 1988 to have been one of the worst droughts in history. That was not the case here. It was hot and dry. However, a couple of timely rains and some wise marketing decisions took the edge off the dry weather finances. Compared to conditions in the central Midwest, we had it pretty good here in Cass County Nebraska. We learned that year that forward pricing in the year following a drought can be a very smart move because prices dropped in sharply 1989.

There have been other years when the needed moisture did not materialize in time to produce a good crop.  We had a period of seven months from November 1999 through June 2000 when there was no precipitation. About the time when we thought there was no hope, the rains fell. Two and a half inches of rain per week came for six weeks.

MOST PROFITABLE STRATEGY

In 2002 and 2003 there were extended periods of dry weather during the growing season. In 2002 the dry weather took place early and corn yields were hurt badly but soybeans were good. In 2003 the dry weather came late. Corn yields were good but soybeans were hurt badly. That is even more stimulus for rotating crops!

I have learned from experience that it is impossible to predict when a drought will occur. It is also impossible to predict the effect that dry weather will have on crop yields. Add to those unknowns the market’s reaction to dry weather. That makes for recipe for frustration in formulating a marketing plan to deal with weather unknowns. It is tempting to eliminate forward pricing of a crop that is not yet produced. Yet in many years that is the most profitable strategy.

Probably the best advice I can give is to understand that you are going to be wrong at least 30 percent of the time when predicting weather or markets. The build your marketing plan around those assumptions using crop insurance, farm program risk management features and marketing tools. Realize that if you make a mistake there will be another chance next year.

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