The Corn and Soybean Digest Online Exclusive
March 7, 2006
Thiesse's Thoughts
By Kent Thiesse, Vice President, MinnStar Bank
Weather And Markets
The big "D" word (drought) is getting a lot of discussion by weather prognosticators and
by grain market analysts during the late winter period, as we're preparing to plant the
2006 crop. Many areas of the Southwest U.S. and large portions of Texas and
Oklahoma have been extremely dry this winter, as have some areas of Nebraska, Iowa,
Missouri and Illinois. Even Southern Minnesota and Northern Iowa have been relatively
dry the past couple of months; however, most of these areas have above average stored
soil moisture as we head into the 2006 growing season.
The very dry weather patterns in many areas have spurred a lot of discussion that we
could be headed into a major drought in many of the crop producing areas of the U.S. in
the 2006 growing season. Very dry conditions in parts of Central Illinois and Eastern
Iowa early in the 2005 growing season looked to be the start of a major Midwestern
drought. However, timely rainfall and moderate temperatures later in the growing season
kept the crop losses from the dry weather pattern in 2005 more isolated in nature.
According to Elwynn Taylor, Iowa State University climatologist, historically the
Midwestern U.S. suffers a major drought that significantly impacts crop production about
every 19 years. Interestingly, the last such major drought in the Midwestern U.S. was in
1988, or 18 years ago. However, Taylor is not yet ready to predict a major drought in the
Midwest U.S. for the summer of 2006, because the current instability of global weather
patterns.
The talk of potential drought in 2006 has made many producers and some grain market
analysts quite "bullish" on grain markets for the coming months. The optimism is
greatest with the prospects for the corn markets. In addition to a potential summer
Midwestern drought in 2006, there are good prospects for increased corn export demand
and domestic usage in the coming months, and for less planted corn acreage in 2006,
compared to a year ago. However, offsetting this good news for the corn markets is the
fact that we have the second largest corn carryover in history at 2.4 billion bushels, plus
a large amount of 2005 corn still in on-farm storage that needs to be marketed in the
coming months.
Most market observers are not nearly as optimistic about the prospects for soybean
markets in the coming months, unless a major Midwestern drought does develop this
summer. The estimated carryover supply of U.S. soybeans is over 500 million bushels,
which is more than triple the size of the soybean carryover just two years ago. In
addition, soybean export sales are lower than one year ago and 2006 planted acreage of
soybeans in the U.S. is expected to increase.
Producers should remember that any better-than-expected crop conditions and
improved yield prospects during the 2006 growing season could cause any corn and
soybean price rallies to be short-lived. In a normal year, the best grain pricing
opportunities for both grain in storage and for new-crop corn and soybeans usually occur
from late winter to early summer (March-June). Even if there is a major drought, the
biggest price impact is usually on the growing crop, and not on the grain that is in
storage from the previous year.
Crop Insurance Deadline_March 15 is the deadline to purchase crop insurance for the
2006 crop year in Minnesota. Be sure to compare the standard APH (yield only) policies
with the Revenue Assurance (RA or CRC) type policies that offer a revenue guarantee
that is based off of yield and price. The base prices and the base guarantees with RA
and CRC policies for corn and soybeans are for 2006 are pretty attractive compared to
yield-only APH crop insurance policies, and remember that revenue guarantees do
increase with CRC and RA-HP policies by harvest if average prices are higher at harvest
time.
Producers may also want to consider the GRIP insurance, which insures all acres of a
given crop with revenue coverage, but at a lower premium than RA or CRC insurance.
However, it should be noted that a GRIP insurance policy will likely not provide
protection against isolated crop losses on individual farms or fields from hail, heavy
rains, wind, etc. Contact your crop insurance agent to analyze your crop insurance
needs and alternatives to determine the most cost-effective crop insurance strategy for
your farm operation for 2006.
Editors note: Kent Thiesse is a former University of Minnesota Extension educator and
now is Vice President of MinnStar Bank, Lake Crystal, MN. You can contact him at 507726-2137 or via e-mail at mailto:kent.thiesse@minnstarbank.com.