Commentary: Drought recovery will be long and slow
Okay it’s official, not that anyone who’s driven even a few miles in corn-country had any doubt, but USDA cut its 2012 corn production forecast by 13 percent to 10.778 billion bushels. In its Aug. 10 crop report, USDA also dropped soybeans by 12 percent to 2.692 billion bushels.
Corn is a lost cause—literally dried up for some farmers. USDA now projects a 123.4-bushel-per-acre average yield. Of course, the actual harvest will tell us more.
Soybeans have been a bit more deceiving. In many places the plants haven’t looked too bad, but are the pods filling? August is a key month for soybeans and there’s fleeting hope that rains will save the crop. But like corn, much of the soybean crop was planted early thanks to a seductively warm and early spring, so it’s running 2 weeks or more ahead of schedule.
Beyond cutting corn to salvage for silage, growers in some Midwest states have started picking—“What’s the point of waiting; it’s dead,” a producer told me. Reports out of Nebraska this week are that soybeans are starting to turn yellow, and that’s not a good sign.
On the plus side, and early freeze date won’t matter.
There are serious supply concerns and the crops will need rationing. At best, a 10.778 billion corn crop would be the lowest since 2006, and between animal agriculture and ethanol there are a lot more corn users today. That’s not to mention the global expansion of corn and soybean demand, of which China leads the list.
While corn gets all the attention, soybeans—and soybean meal-- in 2013 are real concerns for pork producers. USDA’s new forecast is for 36.9 bushels an acre. Adding to the challenges is that fact that the 2012 South American crop fell dramatically short, and the world appetite for soybean-related products is huge.
Another challenge that’s getting some attention, and will only grow in importance, is the drought’s impact on rivers and shipping, specifically the Mississippi River. Last week a reporter stood on the dried up river bottom in Memphis. River levels around St. Louis have dropped such that barges have had to lighten their loads by 600 tons to flow through. Increasingly there are questions about being able to keep shipping open. This could significantly raise the cost of barge transportation and to the overall cost of grain.
Worth noting is that for most of the United States the drought really began last July, as scarce rainfall ushered in a dry fall, a winter with little snow/moisture and a painfully dry spring and summer.
Similar to the buildup of the drought, the recovery will be slow and drawn out.
Livestock and poultry producers have begun to cut herds and that will continue for some time. After all, the feed outlook will not change substantially until mid-2013 at best. USDA has been slow to respond to this sector, but has agreed to purchase protein products for food programs to lighten the burden this fall.
Pork producers are facing record-high breakeven costs, and culling of less-productive sows has begun. It’s not uncommon to have to wait two or three weeks for an opening to sent sows to the packer. There are rumors of $5-per-head or even free weaned pigs available. (Free pigs can still cost you dearly.) One can expect slaughter weights to trend lighter—to the point that packers will allow.
Losses of $10 to $15 per head are projected to follow producers through this year and into next. There will be herd reductions, but the actual degree is hard to measure because you don’t know if you’re hearing about the same 200 sows going to market over and over. The September Hogs & Pigs Report will offer the most concrete insight as the numbers will be collected as the crop harvest reality sets in. Some are estimating a breeding herd reduction of 2 percent. The fact is many producers raising hogs today will ride it out longer, because pork production is their dominant business. The summer 2013 hog futures contracts have been trading high enough to maintain some interest in the longer term, if you can ride it out.
Once cooler temperatures set in and rain (and snow) returns, most people’s lives will move beyond the drought of 2012. However, it will take a long time for agriculture to recover and many in animal agriculture will be forever changed.