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Why grain traders may pay less attention to drought talk

Large crop production numbers over the past four seasons hide the impact of drought.

Tom J. Bechman

January 31, 2024

2 Min Read
A tiny ear of corn with missing kernels due to drought stress
REAL DROUGHT: The last big impact of drought on the grain markets was in 2012, when a significant Midwest drought cut corn and soybean yields sharply. The market reacted, especially after it was obvious from pictures like this one that the impact was real, not just projected. Tom J. Bechman

Chicken Little had a trust problem with his barnyard cronies. The infamous character from the children’s fable cried, “The sky is falling” one too many times. Some believe grain traders may keep this simple tale in mind as the 2024 crop season unfolds. For the past several growing seasons, ag climatologists have told them drought was underway. But when combines ran, there was no widespread drought impact. Instead, U.S. corn and soybean production totals were stout.

“We don’t expect grain traders to be as sensitive to talk about drought,” Chad Hart told growers at the Purdue Top Farmer Conference recently. Hart is an ag economist and grain marketing specialist at Iowa State University.

“There has been drought on the U.S. Drought Monitor somewhere in the Corn Belt over the past four seasons,” Hart said. “Yet looking at USDA production numbers, it’s difficult to see the impact of drought.”

Average bushel-per-acre yields as reported by USDA were:

  • 2020. 171.4 for corn, 51 for beans

  • 2021. 176.7 for corn, 51.7 for beans

  • 2022. 173.4 for corn, 49.6 for beans

  • 2023. 174.9 for corn, 49.9 beans

Classic market example

Scott Irwin, ag economist at the University of Illinois, shares an example of trying to outguess the market’s reaction to weather in his book “Back to the Futures,” written with Doug Peterson. In 1981, as a graduate student in ag economics at Purdue, Irwin saw how a wet planting season delayed planting progress and was convinced it would be a short crop.

Related:State of the state for weather: What to expect in ’24

He took a position in the market betting the crop would be short, using money he didn’t have. His retelling of what happened when the Aug. 12, 1981, crop report spilled out on the ticker machine is worth the read alone. Instead of a short crop, the projection was for a large crop, and markets went limit down.

Irwin says he made two errors in judgment: relying on what he saw out his back door and forgetting about the axiom “rain makes grain.” This book, filled with other memorable lessons about futures markets, is available at amazon.com.

Perception vs. reality

Chicken Little was hit by an acorn, not a falling sky. It’s only a problem for everyone else if everybody gets hit by falling acorns. Likewise, when talk of drought becomes reality because large areas, not just pockets, are hit by severe drought at the wrong time, there can be true market impact. The latest example is 2012.

While not foreseeing anything like that, Dennis Todey, director of the Midwest Climate Hub in Ames, Iowa, notes that drought going back at least three seasons is still ongoing. The U.S. Drought Monitor shows areas of current concern, including a good portion of Iowa.

“Soil moisture going into the growing season bears watching,” Todey told Midwestern audiences during the winter. “We need good soil moisture recharge going into the growing season.” If moisture isn’t fully recharged, crops will be more dependent on well-timed rainfall, he concludes.

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About the Author(s)

Tom J. Bechman

Editor, Indiana Prairie Farmer, Farm Progress

Tom J. Bechman is editor of Indiana Prairie Farmer. He joined Farm Progress in 1981 as a field editor, first writing stories to help farmers adjust to a difficult harvest after a tough weather year. His goal today is the same — writing stories that help farmers adjust to a changing environment in a profitable manner.

Bechman knows about Indiana agriculture because he grew up on a small dairy farm and worked with young farmers as a vocational agriculture teacher and FFA advisor before joining Farm Progress. He works closely with Purdue University specialists, Indiana Farm Bureau and commodity groups to cover cutting-edge issues affecting farmers. He specializes in writing crop stories with a focus on obtaining the highest and most economical yields possible.

Tom and his wife, Carla, have four children: Allison, Ashley, Daniel and Kayla, plus eight grandchildren. They raise produce for the food pantry and house 4-H animals for the grandkids on their small acreage near Franklin, Ind.

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