Rain in drought areas key to U.S. ag rebound

Poor soil moisture | ‘Ugly looking map’ shows drought has spread into western corn belt and northern plains

Weather is usually a wild card in grain market outlooks.

“That’s not necessarily the case this year,” said DTN senior market analyst Darin Newsom.

“It’s the only card. It’s all going to depend on weather.”

Corn, soybean and all related grain and oilseed prices will be heavily influenced by whether the U.S. in 2013 can rebound from a devastating drought.

The odds of that are slim, said Newsom’s colleague Bryce Anderson, DTN’s senior agricultural meteorologist.

The Palmer Drought Index has been measuring soil moisture levels since 1895. That index dropped to -4 in July, indicating extreme drought.

Anderson said the index has been -4 or lower 12 times in the past 115 years. The shortest time it took the index to get back to zero was 18 months and the longest was 51 months.

That means it will likely be at least January 2014 before the drought breaks and it could take as long as four years.

A look at the most recent drought map shows the dry conditions are spreading.

This time last year the drought was mainly contained to the southern plains. Today it has spread north into the western corn belt and northern plains.

“That really is an ugly looking map, but that’s where we find ourselves,” Anderson told delegates attending the DTN/The Progressive Farmer Ag Summit 2012 held Dec. 10-12 in Chicago.

It marked the third consecutive year of drought for parts of the corn belt. Southwestern Kansas hasn’t been drought free since Sept. 20 and it could be in for more dry weather.

The U.S. government is forecasting continued drought throughout most of the country through at least Feb. 28, 2013. Help from an El Nino event doesn’t appear to be in the cards.

If the drought extends into spring and summer, Anderson doesn’t think it will be as bad as 2012, which was the fourth largest drought in the U.S. behind 1934, 1939 and the mid-1950s.

“This drought was bigger than 1988 and that was a very damaging drought. That has been the hallmark of droughts up to this year, at least in my work that I’ve been doing,” he said.

The USDA’s corn yield estimate that started at 166 bushels per acre in February had shrunk to 122 bu. by the end of the growing season.

Anderson thinks you can throw trend line yields out the window in 2013. He forecasts a 140 bushel corn crop, the average of the last three years.

Soybeans have a better chance of success because they can benefit from late-season rains as evidenced this year.

Markets were taken aback by the better-than-expected yields.

Anderson said most of the Canadian Prairies has good soil moisture, with the exception of southern Saskatchewan, southwestern Manitoba and the Peace region of Alberta.

He forecasts a similar storm track as last year for Western Canada.

Soils are saturated in Argentina, which is in the middle of planting. Some areas have received 300 percent of normal rainfall. Corn planting has been delayed.

Conditions are quite good across the major growing areas of Brazil, which is counting on an 82.6 million tonne soybean crop.

Ukraine, which is seen as the next corn belt, has less than ideal moisture conditions heading into winter. China has an adequate supply of moisture as it enters its winter season.

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