Drought, Weather and Contracts

A couple of issues have started being talked about related to the drought which I want to mention. First is crop prices, particularly corn. While prices have rallied a bit over the past few days, the problem is that in this week's crop progress report, Iowa's corn crop is still rated 68% good to excellent, Minnesota's is 83% good to excellent and Nebraska's is 60% good to excellent. While Indiana and Illinois are reporting much worse conditions, you can see that across a good chunk of the corn belt things still look pretty good. I was going to wait until after Friday's grain stocks report to say anything because that could have a substantial impact but based purely on the crop conditions report a radical price increase in corn looks unlikely in the short term.

And those three states I mentioned have been getting rain. Below is a screenshot of today's (June 27, 2012) 7-day precipitation analysis from the National Weather service. You can see where the greens and yellows are.

Another issue that is starting to be talked about is filling contracts if there's a radical yield reduction, which is looking more likely every day. I am not a marketing guru so I'll refer you to this 2010 publication from the University of Maryland. An article on grain contracts starts on page 11.

Link to 2010 University of Maryland Drought Handbook for Grain/Crop Producers

I don't have a lot to add to this publication. Chris Hurt from Purdue is working on developing some articles on this and other drought-related issues and I'll get that information out once it's available. There are two things I want to emphasize from this publication. First is that the most important thing is to talk your buyer about what options are available. Second, the stronger your position, the less expensive it will probably be for you to make changes or buy out of your contract. The article illustrates this fairly well with the tables on pages 12 and 13. While it may be a bit early to start changing contracts, I don't think it's too early to start thinking about your options if this becomes necessary.