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2021/2012 Drought Outlook and Price Movements

Update for January 19th, 2021

Grain prices moved considerably higher last week following the January USDA reports with March corn prices gaining over $0.34 March and soybean prices gaining $0.41. Jerry Gulke of the Gulke Group says that the price increases we saw last week were impressive but they only tell part of the story. “We can get an idea of the momentum of the market by looking at how the markets close in relation to the range prices moved in a week. March corn, we had a range of $0.50/bushel this week (written last Friday). That’s about $100 an acre for people that have old-crop corn to sell.” Gulke explained that “The ranges look good, what you don’t want to see is a $0.50 per bushel range in corn, for example, and we close at the low of the range for the week. That would be a problem.” “NASS says they did 10 times as many surveys for this January report than they did for previous reports. Well, 4 bushels per acre is over 300 million bushels. And that’s what caught the market by surprise. All of a sudden, we have carryover well under 1.6 billion bushels. That’s a huge difference when earlier this year we thought it could be around 2.2 billion bushels.”

Al Kluis of Kluis Advisors told customers that right now the market is closely watching demand. “The export sales report” (from the end of last week) “did not show any slowdown in demand. We only need to export 2 million bushels of corn a week to hit the USDA projection and last week’s exports totaled 56.6 million bushels. For soybeans we only need to average 6 million bushels and last week we exported 33.4 million bushels.”

Kluis says that the market is building in rationing, “The price rationing that needs to be done in the corn market is starting. The Energy Information Agency report” (last week) "showed corn used for ethanol down 14% from last year. If this trend continues, then it will reduce corn used for ethanol by over 500 million bushels. Also, of concern is that even with the drop in ethanol production, ethanol stocks increased by 408,000 gallons.” As far as export business is concerned Kluis added, “I see no slowdown in export demand for corn and soybeans at this time.”

There continues to be strong global demand for U.S. corn with recent old-crop sales to both Japan and Israel. Monthly customs data showed record high exports and record high domestic corn prices and while prices have slid this week most analysts still believe export demand is going to continue to push higher. Chinese corn imports for the last calendar year totaled 11.3mmt, a 135% increase on the year. A hog production manager located in southern China commented, “Domestic corn prices are too high. We will continue to buy alternatives including imported corn, wheat and barley.” Another source with the global shipping firm said, “It is widely expected China’s corn imports in the 2020/21 marketing year will exceed 30 million tonnes”.

Soybean harvest has begun in Brazil. The private group, AgRural has estimated 0.8% of the countries soybean crop has been harvested, slightly behind last year’s 1.8%. AgRural has now reduced their soybean crop estimates to 131.7 MMT vs the USDA’s estimate of 133 MMT. Brazil’s 1st corn harvest is 3.4% complete, running slightly ahead of last year’s 2.5%.

Nancy Gaarder with the Omaha World-Herald ran an article recently titled, “All of Nebraska is in a drought for the first time in nearly 8 years”. Drought conditions vary across the state with nearly one-quarter of the state in extreme drought. At the same time 42% of Iowa’s crop production acres are in some level of drought, 100% of Colorado has some level of drought, 70% of South Dakota, 61% of Kansas and 53% of North Dakota.

The Pacific Ocean cool-water event, La Niña remains in place and will continue to dominate the ag weather scene for quite some time. The National Oceanic and Atmospheric Administration Climate Prediction Center has determined that the current La Nina event is the 8th strongest in 70 years and now has a 95% chance of continuing into the spring season and a high likelihood that it will stick around throughout the 2021 spring season.

The question now is how long and how severe will the impacts be on the U.S. 2021 row-crop growing season. Crop weather scientists have warned us that when conditions are drier than average, “the impact of that dryness could feed on itself. In other words, dry areas could get drier”. At the end of last season’s harvest, the soil moisture profile in northwestern Iowa was tested and showed only 2 to 3 inches of moisture in the five-foot profile. Spring rainfall can make up for the lack of winter precipitation but this winter has not produced much moisture and this has many farmers concerned.

Eric Snodgrass, principle atmospheric scientist with Nutrien Ag Solutions told the Top Producer, “Normally I’m not worried about drought in the winter, but this year I’m a little more concerned.” The dry conditions have sparked worries that 2021 could produce a similar weather pattern to that of 2012 but Brad Rippey, USDA Meteorologist says that it is unlikely that we will see the magnitude of the 2012 drought for a couple of reasons. First, current drought conditions cover much of the western ½ of the country, but only includes a small portion of the U.S. Corn Belt at this point. Secondly, during La Nina the eastern Corn Belt generally tends to receive more rainfall than normal. Rippey added, “La Niña-driven weather impacts should last through the spring of 2021 – and possibly longer if La Niña does not fade away with the arrival of the warm season”. “Multi-year La Niña episodes have occurred several times, including 2010-12 and 1998-2001.”

January has a history of being the coldest time of the year. The map from the Climate Prediction Center shown below illustrates what temps could look like through from January 22nd through the 26th. The good news is that it does not appear at this point that the arctic cold temps will be around for an extended period of time.

Friday night will be the coldest of the season so far with lows expected to drop below zero.

Precipitation over the weekend is expected across a large portion of Iowa. Weather models vary widely at this point but the second map below is the current GFS model for this weekend.

GFS Model snowfall totals through Sunday.

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