December 10, 2012

After the onslaught this year of the worst drought in 56 years, U.S. corn and soybean harvests are complete for 2012.  According to the U.S. Department of Agriculture (USDA) total corn harvested for 2012 was 10.725 billion bushels – 13.2% less than 2011 which saw a total harvest of 12.358 billion bushels.  Average corn yield was 122.3 bushels per acre – a 16.9% drop from 2011’s yield of 147.2 bushels per acre.  The total soybean harvest for 2012 was 2.971 billion bushels, down 4% from 3.094 billion bushels a year earlier. The average soybean yield for 2012 was 39.3 bushels per acre – down 6.2% from 2011’s average of 41.9 bushels per acre. 

Reading these facts gives one the feeling that although these numbers are sobering, and it has been a long, hot, dry year, that somehow now that the harvests are complete and colder weather is upon us that the drought is over as well.  Unfortunately that isn’t the case.

As winter weather settles in in the Northern Hemisphere the drought continues to tighten its grip.  Weather conditions began to improve in early November, however by the end of the month above normal temperatures and below average precipitation are still damaging crops across many regions of the U.S. according to the Drought Monitor.  Weather experts are predicting a drier than average winter for much of the Central U.S., threatening the new wheat crop and creating further hardships for farmers and ranchers.

As of November 27^th 62.65% of the contiguous U.S. was under at least “moderate” drought conditions.  The hardest hit area is the U.S. High Plains which includes such key farming states such as Nebraska, South Dakota and Kansas.  Within these states 58% of the land area is under “extreme” or “exceptional” drought conditions – the worst category of drought.  The overall portion of the contiguous U.S. under “extreme” or “exceptional” drought has increased to 20.12% from 19.04%. 

According to the U.S. Department of Agriculture (USDA), so far this year insurance companies have paid out $6.3 billion to U.S. farmers in response to crop damage suffered from drought.  Some analysts believe the still-persistent drought in the Farm Belt will drive this amount up to $20 billion.

With such losses in 2012, further losses are likely in 2013.  Overall crop conditions for U.S. winter wheat have declined for the fourth straight week and are now the worst since 1985.  The USDA announced that the conditions of the U.S. winter wheat crop fell to an all-time low for late November with only 33% of the crop rated “good to excellent,” and 26% was rated “poor to very poor” compared to 13% a year earlier.

The National Oceanic Atmospheric Administration has forecast warmer than average temperatures in Texas northward through the Central and Northern Plains and westward throughout the Southwest.  A drier than average winter is forecast for Kansas, Nebraska, the Dakotas and through the upper Midwest.

Wheat is the fourth biggest crop in the U.S. and winter wheat is the most-common variety planted, equaling 72% of all wheat harvested.  Last winter the crop survived because there were soil moisture reserves. This winter following a year of harsh drought conditions, the crop is more susceptible to desiccation from the poor, dry weather.  There are reports of portions of the winter wheat crop already dying in some fields.  During the past 90 days 46% of the wheat crop from Texas to Montana received less than half the average rainfall. 

Even given the current weather and crop conditions, the U.S. planted the highest total area planted of winter wheat since 2009.  Will the extra acreage make up for the likely lower yields next year?  If the U.S. experiences a hit to its wheat harvest in 2013 after Russia and Ukraine have had drought ravaged harvests in 2012 causing them to run dry of exportable wheat, will the wheat market soar next year?  This will definitely be one to watch.  The next report from the USDA concerning the U.S. winter wheat crop for 2012-13 will be released on January 11, 2013.