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Heat causes Corn Belt concerns

A few weeks ago, we wrote in this column that "Pro Ag senses a change in weather
for grains this week that could have huge repercussions for grain producers and
buyers across the world."

Also, that, "corn/bean weather is turning more adverse, with
warm/dry conditions beginning to envelope the US Corn Belt at a critical stage
of development (reproduction). While corn is far enough along that devastating
yield losses may not be possible in many areas, soybeans still have the most
critical development stage ahead of them (podding)."

This looks pretty prophetic at this stage, as the past 3 weeks have brought
increasing stress on crops. While heat has developed across the Corn Belt,
there also have been intermittent rains through the central and northern Corn
Belt that have kept crops from declining rapidly the past few weeks. Although
Pro Ag corn yield projections have now dropped almost 3 bu from just a few weeks
ago, we still have a crop estimate just under 150 bu/acre - not much different
than USDA's projection last spring (150.3 bu). While we doubt USDA will adjust
this estimate much (if at all), it's also true that the number has gone down.
The market is nervous about the current heat (4-10 degrees above average
forecast at 5 more days), which is unusually hot compared to normal nationwide.
It's likely crops will continue to decline, but with advanced corn crops it would
be difficult to hurt this crop much. Most corn is already formed in the cob,
with it all the way to milk stage even as far north as ND. There isn't much
that can hurt this crop now, as not even 3 week early frost dates will cause
much damage.

But soybeans could yet be a different story. If not for the unbelievable timing
of rains this week in the most critical area (the central Corn Belt), we could
have had the beginning of a crop disaster in soybeans similar to 2003. But the
recent 2 week wet period in the heart of Corn Belt country (eastern NE, IA,
southern MN/WI/MI, and northern ILL/IND/OH/PA) are billion dollar rains in this
country, as it will improve crops there (especially where over 2" fell). The
good fortune of these growers is evident when you realize their yields are
rising while prices are rising due to adversity in the southern Corn Belt and
US. It's been nearly 100 degrees in the Delta for over 1 week with little/no
rain, and similar weather for southern ILL/IND/OH/TN/KY that will certainly hurt
crops in these areas.

HRS wheat harvest is well underway in the spring wheat belt, with yields about
average to slightly above average for most growers - kind of a disappointment,
considering all the rain they had. But a warmer than normal year is typically
not as beneficial for small grains crops (wheat/barley) as for row crops (corn,
soybeans, dry beans, sunflowers). While northern areas have above-to- much above
average yield potential in row crops, small grains (wheat/barley) might just be
slightly above average. Overall, that's not a bad situation for northern Corn
Belt producers on a year where prices are attractive.

Pro Ag wonders how long things can look this good for profit potential in
agriculture, as typically something comes along to derail our eternal optimism.
So far in 2007 that hasn't happened, as although corn/bean prices dropped over
$1 from spring/summer highs, already they are trying to recover. Wheat has
already run to new highs - not bad considering US producers still have an above
average HRS wheat crop.

Hopefully things can keep going into harvest of corn and soybeans, but the wheat
market action to date is certainly encouraging. Consider we've never had wheat
futures over $6 or higher through harvest (even in 1995/06), and you really have
to respect what grains are capable of doing over the coming year. If wheat can
set all-time harvest highs, perhaps corn and soybeans can too? Now all we
need to do is get basis at a decent level, and we just might be able to make
some serious money in 2007!

A few weeks ago, we wrote in this column that "Pro Ag senses a change in weather for grains this week that could have huge repercussions for grain producers and buyers across the world."

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