Drought widens, corn and soybean prices up again.

[Ephraim Ben Noach]

This will affect us all! We need to pray!

http://blogs.desmoinesregister.com/dmr/index.php/2012/07/05/drought-widens-in-iowa-midwest/

Drought widens, corn and soybean prices up again
7:38 AM, Jul 5, 2012 | by Dan Piller |  Comments Categories: Green Fields: Agriculture and Alternative Energy

   
A
A
 
Latest drought map for Iowa shows drought extending further into eastern Iowa
A new drought condition map showing widened coverage of the 2012 drought across the Corn Belt sent corn prices near $7 per bushel and soybeans near $15 when trading began on the Chicago Board of Trade after the holiday hiatus.

Corn opened up 19 cents per bushel to $6.94 for the December contract covering this year’s crop. That price is a full $1.75 above corn prices in early June.

Soybeans for the new crop November crop was up 37 cents per bushel to $15.14 at noon, extending what is already an all-time high for the November contract.

Iowa is the nation’s largest producer of both corn and soybeans. In 2011 the two crops put $20 billion in cash into Iowa’s economy.

The latest U.S. Drought Monitor map shows increased drought conditions through eastern and far northwest Iowa, while virtually all of the important corn-growing states of Illinois and Indiana remain classified as in drought conditions.

The latest Iowa map extends drought conditions from central Iowa to cover the regions around Waterloo and Cedar Rapids to Dubuque, while maintaining drought conditions in an S-shaped curve through central Iowa from the Missouri to Minnesota borders.


Key corn-growing states of Iowa, Illinois, Missouri and Indiana are at the center of the drought
Also, a portion of northwest Iowa north of Sioux City has been added to the abnormally dry condition category.

That dryness in far northwest Iowa now extends into the important corn-producing region of southern Minnesota, which until now has been spared the harshest effects of the dry summer.

A portion of Iowa from the Missouri River eastward through two tiers of counties is still considered to have adequate moisture.

Iowa’s rainfall totals in May and June were less than half of normal, and the last appreciable rainfall in the state occurred last Friday when much of central and eastern Iowa received from one-half to two inches of rain.

Meanwhile Iowa has been baked by temperatures of 100 degrees or more, which evaporates moisture from the soil at the rate of three-tenths of an inch per day, according to state climatologist Harry Hillaker.

Corn prices have risen $1.65 per bushel to a nine-month high on concerns that the drought will hamper pollination, which usually happens in early to mid-July. Soybean prices reached a four-year high for the November contract last week on similar concerns.

Bryce Knorr of Farm Futures Magazine said this morning “triple digit heat will cover much of the heart of the Corn Belt again today, with only partial relief in sight. While temperatures will slowly cool from the northwest, only limited chances for rain are in sign for key states over the next week.”

Tomm Pfitzenmaier of Summit Commodities in Des Moines said “there is little doubt that the weather over the past two or three days took a heavy toll on the corn crop and especially for those that have been missing key rains over the past couple of weeks. The crop condition rating due out next Monday is bound to show additional decline in the good/excellent category.”

For the Midwest portion of the U.S. Drought Monitor, click here.

For more news about Iowa agriculture and energy click here for the Register’s Green Fields page on Facebook.

 

[Kahane-Was-Right BT]

Nitrogen fertilizer stocks should trade higher due to this.    IMO

[Ephraim Ben Noach]

This is not good! With our current government... fuel, food, etc. will skyrocket if we do not get rain soon! Remember the 1930's? What came next?

[syyuge]

Yes, it will be deteriorating the economy further.

[Zelhar]

Nitrogen fertilizer stocks should trade higher due to this.    IMO

Why is that ?

[Kahane-Was-Right BT]

Why is that ?

They will need to plant more to satisfy demand and nitrogen based fertilizer is the main type used for corn crops.  This was quite a large corn crop to begin with, so they used a lot of fert for that, and it will fall far short, think how much they will need not only in desperate attempts to save/bolster this year's crop but also in next planting cycle.

Also irrigation systems companies will be hot and those stocks have already started running.  For example lnn

[Zelhar]

They will need to plant more to satisfy demand and nitrogen based fertilizer is the main type used for corn crops.  This was quite a large corn crop to begin with, so they used a lot of fert for that, and it will fall far short, think how much they will need not only in desperate attempts to save/bolster this year's crop but also in next planting cycle.

Also irrigation systems companies will be hot and those stocks have already started running.  For example lnn

Is there anything the farmer can do with more fertilizer this season ? As for next season, in every crop cycle the farmers try to maximize the crops. The main choice they have to make is which crop to plant (between soy beans, corn, and wheat mainly, I think) I am not sure they will plant even more corn next season if they already planted allot of corn this season. It's always a good thing to find a balance and they know it best.

[cjd]

Is there anything the farmer can do with more fertilizer this season ? As for next season, in every crop cycle the farmers try to maximize the crops. The main choice they have to make is which crop to plant (between soy beans, corn, and wheat mainly, I think) I am not sure they will plant even more corn next season if they already planted allot of corn this season. It's always a good thing to find a balance and they know it best.

The problem is not lack of fertilizer it the lack of water...  Corn to fuel programs put a strain on an already tight water supply... The only solution is to restrict the amount of crop that can be used for fuel... If not be prepared to pay ever higher prices for corn based products.

[Kahane-Was-Right BT]

Is there anything the farmer can do with more fertilizer this season ? As for next season, in every crop cycle the farmers try to maximize the crops. The main choice they have to make is which crop to plant (between soy beans, corn, and wheat mainly, I think) I am not sure they will plant even more corn next season if they already planted allot of corn this season. It's always a good thing to find a balance and they know it best.

No but they make that decision based on the corn price.  Corn is up 37% in 3 weeks.  Because there is not eenough to meet demand.  Worst drought since 88.  So they will plant as much as possible next year in order to swim in pools of cash.

[Kahane-Was-Right BT]

I also believe companies like MOS and Potash corp should trade higher, but I know less about them - and again, they already had a bit of a runup (but probably will be more to come).   That is why I prefer the nit. fert trade since there's plenty of upside still there and fundamentals in its favor.   

[Kahane-Was-Right BT]

The way I see it, there are two groups of people minting serious coin right now.  Oil refiners and Iowan corn farmers.   The Iowa corn farmers are loading swimming pools with dollar bills by wheel barrow right now.   They haven't had any drought and they benefit from the corn price bonanza.

Now I ask myself, will such farmers have an incentive to plant as much corn as possible next year in case any weather disruptions happen again and they can easily strike it rich?   I say yes.    How about the guys whose crops didn't make it?  Won't they plant as much as possible next year in case of any disruption ?   So they will need to stock up on fert.    Even with good weather I don't believe high demand for corn is going away, already did not believe that prior to this outcome.      I also tend to believe farmers hurt by this drought will be more inclined to purchase irrigation systems, and thus the sales of irrigation systems companies will likely do well the rest of this year.   Just being incrementally better than usual will cause them to beat earnings estimates.  I'm not saying they are going to automatically grow by 50% or anything.   Just more inclined here or there to make sales than before.     
I prefer to buy when the stocks go down or carve a base, so I kind of like the irrigation ones for a trade maybe due to some sideways levitation after sustained move up.     And nitrogen ferts show plenty of upside.    Of course I could be wrong, and I have been wrong before.  But throwing out some ideas here.

But speaking of oil refiners they are up big already.   (I have traded in and out of them over the past year or so).   So it's tough to play that at this point unless you were already in from several months ago or several dollars lower at least.   Or if you're a financial whiz who knows about valuations more than I do (NOT my expertise).   Sometimes I cannot figure out how high is too high for a stock, and when a high is just on its way to going higher.    Always difficult to tell unless you have some business background, so I have sold some winners way too soon in the past.

[Zelhar]

I am no expert but I think that for the next season and the long term there are many other factors to determine seeding pattern for next year and even more factors to influence fertilizer prices.

Just think about it, a drought this year means nothing about what's going to happen next year. Lets say a farmer planted corn on 50% of his farmland this year, do you think he is going to increase the proportion to 75% or 100% corn for next year, Would it be wise ?

Also usually when one crop prices spike, the others (soybean, wheat) also inflate in price.

And finally don't forget the demand for fert is global and there are other markets that heavily influence its price, especially China and South America.

[cjd]

The bottom line is there is a limit to what the market will will pay for non food corn based products... It seems that here in America shale oil is becoming a big factor and has a very big potential of reversing some of the corn based fuel market... Alcohol is a very poor motor fuel because it does not yield the miles to the gallon that oil based fuels do... Even in the food market corn prices are killing off the demand for beef products because of soaring beef prices due to corn based feed product prices... Corn farmers are doing well however I don't see the picture getting much better for them then it is right now... Corn for fuel requires a great deal of water which in the long run is not sustainable... It's not a question choosing to plant or fertilize more in the up coming year is a question of having enough irrigation water to sustain whats planted... I worked with an old Iowa share cropper years ago and he told me countless hours of stories of growing up on the farm in the early 40's and 50's... Most of the farm land he grew up around in Iowa sits unused today... The main problem is they relied on ground water and nature to supply irrigation... Farms like the ones he talked about sounded like they could support a marginal existence at best.

[Zelhar]

The corn for Ethanol industry is completely dependent on government subsidies and regulations. The Ethanol is not only much more expensive to produce from corn even compared to fossil fuel, it also takes almost as much fossil fuel (diesel and coal) energy to produce ethanol as the amount of ethanol produced.

[cjd]

The corn for Ethanol industry is completely dependent on government subsidies and regulations. The Ethanol is not only much more expensive to produce from corn even compared to fossil fuel, it also takes almost as much fossil fuel (diesel and coal) energy to produce ethanol as the amount of ethanol produced.

Yes, very true... If people really understood the true non productive picture they would not be pleased paying more at the food counter to sustain something like that.

[Kahane-Was-Right BT]

I am no expert but I think that for the next season and the long term there are many other factors to determine seeding pattern for next year and even more factors to influence fertilizer prices.

Just think about it, a drought this year means nothing about what's going to happen next year. Lets say a farmer planted corn on 50% of his farmland this year, do you think he is going to increase the proportion to 75% or 100% corn for next year, Would it be wise ?

Also usually when one crop prices spike, the others (soybean, wheat) also inflate in price.

And finally don't forget the demand for fert is global and there are other markets that heavily influence its price, especially China and South America.

Above certain corn prices, the incentive to plant corn is greater than that of other crops (such as soybeans).   That is why I think that elevated corn prices will play a role.   Even if each farmer, on average, only incrementally increases his corn planting, those numbers add up.    It doesn't require a major shift like 50 to 75% for each farmer.
Admittedly, I think the irrigation systems thesis is more compelling.    But I was bullish on the nitrogen fertilizers even before this happened.